Consider the effects of taxes imposed on both labor and capital income. The production function takes the standard Cobb-Douglas form: Y = Kª (AN)¹-ª The tax rate equals í, saving rate equalss, the rate of technological progress = g, capital depreciation rate = d, and population growth rate = n. The government spends tax revenues on consumption goods, so that government savings are equal to 0. a) Write down the production function in the intensive form. Use the dynamic equation for capital per units of effective labor to compute the value of consumption per units of effective labor in the steady state. b) Compute the golden rule saving rate in the Solow growth model extended to include taxes. c) Use the Basic Solow growth graph with the saving and production functions drawn

Consider the effects of taxes imposed on both labor and capital income. The production function takes the standard Cobb-Douglas form: Y = Kª (AN)¹-ª The tax rate equals í, saving rate equalss, the rate of technological progress = g, capital depreciation rate = d, and population growth rate = n. The government spends tax revenues on consumption goods, so that government savings are equal to 0. a) Write down the production function in the intensive form. Use the dynamic equation for capital per units of effective labor to compute the value of consumption per units of effective labor in the steady state. b) Compute the golden rule saving rate in the Solow growth model extended to include taxes. c) Use the Basic Solow growth graph with the saving and production functions drawn

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In an economy characterized by a Cobb-Douglas production function (without technical progress), labour’s share of income is 70% and the depreciation rate is 3% per annum. The economy is in a steady state with GDP growth at 4% per year and with a capital output ratio of 2. Find the saving rate and the marginal product of capital. At time t the saving rate in this economy increases to a new constant level, with the outcome that the economy converges to the Golden Rule steady state. What is the new savings rate, capital output ratio and marginal product of capital?
Consider an economy in which the consumption, investment and production functions are as follows.C = 90 + 0:7(Y - T)I = 250 - 20r F(K;L) = AK1=2L1=2The capital and labor supply are equal to 100 each, A=10, G = 200 and T = 200. Compute theequilibrium values of output, overall labor income, consumption, public savings, national savings,investment, and the interest rate.Suppose now government spending decreases to G=100 (everything else stays the same). Whathappens to output, consumption, savings, investment and the interest rate? Compute the newvalues for these variables.
Consider an economy in which the consumption, investment and production functions are as follows. C = 90+0.7(Y-T) I = 250 - 20r
India is the second populous country in the world that has indicate growth improvement over time. Suppose consumption function for India is C = 250 + 0.6(Y – T) and taxes are autonomous which equal to $20. (a)Find India’s consumption function (C). (b)Suppose India’s investment (I) is equal to $300 and government spending (G) is equal to $150 at every level of disposable income. Calculate national income equilibrium for a 3-sectors economy. (c) In the same year, India seems to be very active in export and import activities. This sector has contributed $100 for net export (NX). Calculate national income equilibrium for the 4-sectors economy of India.
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