QUESTION 1 Ramsey Cass Koopmans model. (a) Consider the Ramsey Cass Koopmans model where k at time 0 (which as always the model takes as given) is at the golden-rule level: k(0)=K^(GR) Sketch the paths of c and k. (b) Consider the same initial situation as in part (a), but in the version of the model that includes government purchases. Assume that solutionspile.com

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QUESTION 1 Ramsey Cass Koopmans model. (a) Consider the Ramsey Cass Koopmans model where

k

at time 0 (which as always the model takes as given) is at the golden-rule level:

k(0)=K^(GR)

Sketch the paths of

c

and

k

. (b) Consider the same initial situation as in part (a), but in the version of the model that includes government purchases. Assume that

G

is constant and equal

/bar (G)

. Crucially,

/bar (G)G

is strictly less than

,f(K^(GR))-(n+g)K^(GR)

and strictly greater than

f(k**)-(n+g)k**

(where

k**

is the level of

k

on the balanced growth path the economy would have if

G

were constant and equal to 0 ).

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