21. Consider the Solow growth model where we add government purchases, G. According to the expenditure approach of GDP,

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21 Consider The Solow Growth Model Where We Add Government Purchases G According To The Expenditure Approach Of Gdp 1 (24.35 KiB) Viewed 13 times

21. Consider the Solow growth model where we add government purchases, G. According to the expenditure approach of GDP, Y=C+I+G. Suppose G = gY, where g is a number between 0 and 1. Government purchases are financed with taxes, T = G. Agents invest a fraction 5 of their disposable income, Y-T. Formally, I = S(Y-T). A permanent increase in the share of government consumption, g, leads to: An increase in steady-state GDP d. An increase in private consumption but no effect on GDP A decrease in steady-state GDP a. b. C. A decrease in private consumption but no effect on GDP c. A decrease in private consumption and an increase in the capital stock