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(50 points) Consider the neoclassical growth model developed in class. The economy with constant population is composed of a very large number of infinitely-lived homogeneous

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(50 points) Consider the neoclassical growth model developed in class. The economy with constant population is composed of a very large number of infinitely-lived homogeneous households with preferences described by t=0tlog(ct) where ct is consumption at date t. Households are endowed with one unit of productive time each period, k0 units of capital stock at date 0 , and equal ownership shares of firms' profits. Households rent capital and labor services to competitive firms. Households can allocate their income to consumption or investment. There is a government that imposes a proportional tax on capital income of households. Tax revenues are rebated back to households as a lump sum transfer T. Capital accumulation follows: kt+1=(1)kt+xt. Firms produce output according to the following production function Yt=AKtLt1. d. (15) Suppose the economy is in steady state but subject to a one-time permanent increase in and a decrease in A. Decompose the effects on the steady-state output per capita of these two changes. (50 points) Consider the neoclassical growth model developed in class. The economy with constant population is composed of a very large number of infinitely-lived homogeneous households with preferences described by t=0tlog(ct) where ct is consumption at date t. Households are endowed with one unit of productive time each period, k0 units of capital stock at date 0 , and equal ownership shares of firms' profits. Households rent capital and labor services to competitive firms. Households can allocate their income to consumption or investment. There is a government that imposes a proportional tax on capital income of households. Tax revenues are rebated back to households as a lump sum transfer T. Capital accumulation follows: kt+1=(1)kt+xt. Firms produce output according to the following production function Yt=AKtLt1. d. (15) Suppose the economy is in steady state but subject to a one-time permanent increase in and a decrease in A. Decompose the effects on the steady-state output per capita of these two changes

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