Question 2: Ramsey Model with Fiscal Policy. Consider a Ramsey economy that is on its balanced growth path. Suppose the government announces at time 0 that at some later time, time t] , investment income will begin to be taxed at rate 1". This tax will then be in place forever. Revenues from this tax will be rebated back to households as lump-sum transfer. (2a) Begin by describing and drawing the balanced growth before the policy an- nouncement. (20 points) (2b) Draw the phase diagram showing the dynamics of c and i: from the an- nouncement ll t1. Interpret your answer. (20 points) (2c) Draw the phase diagram showing the dynamics of c and k after time t1. Interpret your answer. {20 points) (2d) Can (2 change discontinuously at time t]? Why or why not? (10 points) {2e} In light of your answers to parts (2b), (2c), and (2d), what must c do at time 0? (10 points) (2f) Analyse now the alternative policy where the government announces at time 0 that the tax on investment will be in place from time 0 till t1 and then it will be set to zero forever after. {20 points)