Suppose that in a one-period closed-economy model the representative consumer has the utility function: U(cl) =In(c)+0.8ln(1). The production function is: Y=zN (no capital). The government levies a lump-sum tax (T) on the consumer, and h>G/z. Calculate the government expenditure multiplier.

Assume that specific functional forms are assumed for the consumption function and the investment demand function: C = c1(Y; – G;) + c2(Y;+1- G++1) – C3ri I = -dır: + d2At+1+ d3Kt Where c1, C2, c3, di, dzand d3are fixed parameters governing the sensitivity of consumption and investment to different relevant decision factors. a) Find an algebraic expression of the IS (Investment-Savings) curve. b) Use the above expression to find the slope of the IS curve. C) Assume that the parameter values are: C1 = 0.6, c2 = 0.5, c3 = 10, dı = 20, d2 = 1 and d3 = 0.5. Assume that Yt+1 = 15, Gt = 10, Gt+1 = 10, At+1 = 5 and Kt = 15. Assume that rt = 0.1. Find the product in the current period. d) Now suppose ri = 0.15. Find the product Y in the current period. (e) Create a range of values of r, between 0.01 to 0.2, with 0.001 intervals between values. Find Y for each r:using an Excel sheet and draw the IS curve. Does it have the expected slope? Comment f) Find another version of the IS curve with A…

Read Kiyotaki (1998). Consider the model in section 2 of the paper. Suppose there is no borrowing constraint (i.e., assume 0 is arbitrarily large). Also assume that a = 1.2, ß = 0.9, y = 1.05, d = 0.1, and n = 4. (The notations of variables and parameters follow Kiyotaki (1998). Just in case, & denotes the lower case of Delta in the Greek alphabet.) Reference: Kivotaki, N. (1998). "Credit and Business Cycles." The Japanese Economic Review, volume 49, issue 1, pages 18-35. 1. What is the equilibrium value of the net interest rate in the steady state? (For example, if your answer is 5% in percentage points, then enter 0.05.) 2. Compute the ratio of aggregate borrowing (Bt+1 /rt) to aggregate output (Yt + Y't) in the steady state. (You can assume that this ratio is constant in each period in the steady state.) Notes: Make sure to clarify the notations of variables and parameters in your proof clearly if they are different from those defined in Kiyotaki (1998).

If the consumption function is C = 100 + 0.8Yd, T= 200 and Y = 800, what is savings?

Using the Lagrange multiplier, calculate the marginal cost ofproducing an additional unit of output at the cost minimising point?

Consider an economy in which the consumption, investment and production functions are as follows. C = 90+0.7(Y-T) I = 250 - 20r