Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Consider now an infinite repetition of the single-period model where we do not allow capital to accumulate between periods. In period 0, the government an-
Consider now an infinite repetition of the single-period model where we do not allow capital to accumulate between periods. In period 0, the government an- nounces that it will choose the Ramsey policy every period. Assume that con- sumers believe that as long as the government has chosen Ramsey policies in the past, it will continue to do so, but if the government ever deviates, it will tax capital fully from then on. Is the sequence of government policies described above a sustainable equilibrium if = 0.2? Defend your answer. (f) Consider again an infinite repetition of the single-period model where we do not al- low capital to accumulate between periods. In period 0, the government announces that it will choose the Ramsey policy during even periods and the single-period sustainable policy during odd periods. Consumers believe that any deviation from the Ramsey policy in an even period will be followed by deviations in all subsequent even periods. Is the sequence of government policies described above a sustainable equilibrium if = 0.2? Defend your
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started