Question
A country's yearly output is Q = 120. The world interest rate is 8%. In year O the output drops to 100, but it recovers
A country's yearly output is Q = 120. The world interest rate is 8%. In year O the output drops to 100, but it recovers the year after. Assume l =0 and G=20. The country wants to smooth consumption over time. Answer the following questions:
a) How much should the country borrow in year 0?
b) What will be the level of consumption starting in period 1?
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Authors: Jeffrey F Beatty, Susan S Samuelson
3rd Edition
0324537115, 9780324537116
