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Government in the Solow growth model Foreign aid in the Solow model
A.Government in the Solow growth model
1.Why is the equilibrium condition now sp + sg = I?
We work with following assumptions:
1. Closed economy with national income accounts identity Y = C + I + G
2. All savings are invested
Before the introduction of tax all of the consumer's savings represent the total Investment. The introduction of tax reduces the net income of the private sector and flows to the government. What is not spent by the government will be saved and is therefore part of the investment. Gov-ernment and consumer savings represent now the total investment. Replacing taxes…
- Government in the Solow growth model Foreign aid in the Solow model
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