Will it ever run fiscal deficits or surpluses? Can you discern any rule by which the government should set taxes?

(a) Suppose that the world interest rate equals the autarky rate, r^. Show that a small permanent rise in the world interest rate that occurs on date benefits not only the date old, but also the young on dates t, 1+1, +2, and so on. What is the intuition for this result? [Hint: The capital-labor ratio now satisfies k = w/(1+ B)(1 + n).] i