Question from Past Macroeconomics Qualifying Exam (Spring, 2003 - Question five) at George Mason UniversityEdit
Both real business cycle theorists and Austro-Swedes give capital a pivotal place in their anaytlical efforts. In so doing they stand in sharp contrast to the bulk of modern macroeconomic theorizing. One implication of grounding the analysis on capital is that today’s stock of consumables is a product of earlier plans and decisions. Another implication is that action today can only affect consumption tomorrow. Construct a simple model capturing these implications. Use this model to assess the impact of
- (a) a tax cut and
- (b) an increase in government expenditure designed to stimulate current consumption spending.