Consider the following variant of the basic growth model: We will include a government that consumes output (G) and pays for it by imposing lump sum taxes (T)

Consider the following variant of the basic growth model: We will include a government that consumes output (G) and pays for it by imposing lump sum taxes (T). The government balances its budget every period. With these modifications the model becomes: Y = A'-a .K .N- N, =1 Y =C, +1, +G, 1, =s.(Y-T.) T, =G, K,+1=K:(1–8 )+1, Suppose government spending is proportional to output. As the country grows, the government spends more and more. Specifically suppose government spending is Ge = 0 · Y, where is between 0 and 1. a.) Plug the relevant equations into the capital accumulation equation to derive an expression for Kr+1 involving only K (and some parameters). b.) There is no growth in the steady state (i.e. Kt+1/ K+ =1). Solve for the steady state capital stock K*. How do changes in @ affect the steady state?