the Ramsey model

Consider the Ramsey model on its balanced growth path. Suppose that at some time, which we will call time 0, the government switches to a policy of taxing investment income at rate 7"\". Thus the real interest rate that the households face is now given by r(t) = (1 7"\") f' (k (75)). Assume that the government returns the revenues it collects from this tax through lumpsum transfers. Finally assume that this change in this tax policy is unanticipated. (a) How, if at all, does the tax affect the c' = O and the is = 0 curves? (20 points) (b) How does the Economy respond to the adoption of the tax at time 0? What are the dynamics after time 0. (15 points) (c) How do the values of c and k on the new balanced growth path compare with a scenario where 7"6 = 0 'v' t? (15 points)