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Consider the formulation of competition policy in Section 13.1.6.

(a) Characterize the equilibrium fully.

(b) Write down the welfare of the representative household at time t = 0 in this equilibrium.

(c) Maximize the welfare function derived in part b by choosing a value of γ.

(d) Why is the optimal value of γ not equal to some γ∗ ≥ 1/(1- β)? Provide an interpretation in terms of the trade-off between level and growth effects.

(e) What is the relationship between the optimal value of γ and ρ?

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M91892194

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