macroeconomic effects of government spending

Question 1

what are the framework assumptions of the government spending model for the economy?

Answer 1

Question 2

why is lump sum taxes the best case for government taxation?

Answer 2

it is non-distortionary so capital accumulation is unaffected

Question 3

what are the framework assumptions for the private sector?

Answer 3

Question 4

what are the framework assumptions for the government sector?

Answer 4

Question 5

who owns the capital and the private firm in the government spending model?

Answer 5

the household owns the capital and the private firm

Question 6

what is the total income of the household In the government spending model?

Answer 6

Question 7

what is the law of motion for the capital stock?

Answer 7

Question 8

what is the budget constraint of the household?

Answer 8

Question 9

what type of economy is the government spending model and therefore how can therefore what is NI identity?

Answer 9

Question 10

what is the national income identidy for the government spending model which accounts for government spending, how is this derived?

Answer 10

Question 11

what is the maximisationn problem of the household?

Answer 11

Question 12

what is a way to consider ϕ?

Answer 12

the productivity of the government sector, the fiscal multiplier.

Question 13

are there any defecits within the government spending model?

Answer 13

no as the taxation is equal to government spending in each period

Question 14

what is the lagrangian of the household condition?

Answer 14

Question 15

what is the first order condition with respect to C_t and K_t+1?

Answer 15

Question 16

how can you use the first order conditions for both C_t and K_t+1 to find the euler equation?

Answer 16

Question 17

at the steady state, waht are the values of capital and consumption and therefore what does the eu;er equation simplify to?

Answer 17

Question 18

at the steady state, what does the budget constriant simplify to?

Answer 18

Question 19

what does this equation mean about the utility of the household

Answer 19

if the fiscal multiplier is greater than 1 then higher government spending will increase the utility of the household

Question 20

how is this equation able to be derived?

Answer 20

it takes advantage of the fact that capital stock is unaffected from government spending

Question 21

in the production function fo the government, what are the implications about the size of the economy

Answer 21

in larger economies, where the capital stock is higher, government spending will have a greater impact

Question 22

what is the household maximisation problem for the second production function for the government?

Answer 22

Question 23

what is the lagrangian problem for the second production function for the government?

Answer 23

Question 24

what are the first order conditions for the lagrangian in the second production function for the government?

Answer 24

Question 25

how can the euler equation be derived by the first order conditions in the second production function for the government?

Answer 25

Question 26

at the steady state, what does the euler equation of the second production function for the government>

Answer 26

Question 27

what does the derivative of the steady state capital with respect to government spending imply?

Answer 27

the derivative of steady state capital with respect to government spending is positive, so when the capital stock is larger, the impact of government spending will also be larger

Question 28

does consumption increase with government spending

Answer 28

you can not argue that consumption increases with government spending as there are some values of parameters for which the consumption at steady state with respect to government spending might be negative