ECON 702 Midterm: PrelimAugust2015_Krueger_702
Document Summary
1 the neoclassical growth model with produc- tive government expenditures (barro 1990) A representative (cid:133)rm produces output according to the production function. Yt = f (kt; nt; gt) where gt is government expenditures. Capital depreciates at a constant rate (cid:14) (cid:21) 0: the aggregate resource constraint reads as. Yt = ct + kt+1 (cid:0) (1 (cid:0) (cid:14))kt + gt where ct is aggregate consumption. Government expenditures are exogenous and follow the following determin- istic process: Gt = (cid:26)gt(cid:0)1 where (cid:26) is a parameter. Households as well as the social planner take the se- quence fgtg as given and beyond their control. Assume that g0 > 0 is a given initial condition. There is a large number of identical households with total mass equal to. 1: each household is endowed with k0 units of capital and one unit of time in every period.
