1. Household choose consumption C, and labor M to maximize Eo E BE Inc, - Nits 1=0 subject to where II, denotes dividends (profits) obtained from firms which the house- holds own and T, denotes taxes that are used to finance government spend- ing: Ti = GI. Assume that taxes are financed through a labor income tax 7 so that GI = TWIN Firms in this economy choose labor demand N. to maximize profits MI = Y - WINt Y = ON." where of is a the current level of technology. There is no capital in this model, so all output is either consumed by households or used for govern- ment spending: Yt = C+ G (a) What are the optimality conditions for the households choice of N, and Ci?. Explain what these conditions mean in words. What is the optimality condition for the firm's choice of N? Note that with a labor income tax, the household budget constraint can be written as At1 = ReArt (1 - n)WiNt - C+ II, (b) Write down the equilibrium conditions for this economy. (c) Is the impact of government spending on labor and output stronger in the case where government spending is financed through a labor income tax relative to the case where government spending is financed through a lump-sum tax as discussed in class?. Explain