2. Suppose there is an economy with one household who cares only about consumption of a final good (cocomts) and leisure. The household has h = 50. The household's preferences over consumption of coconuts and leisure is given by the following utility function: u(C,) = C + 200 ln(0). There is a single firm which makes coconuts. The firm uses household labour and a fixed amount of capital (coconut trees) equal to K = 64 to produce coconuts. The production function for producing coconuts is given by Y = 2 (ND)(K)". Here z randomly bounces around between L = 10.0 and 2h = 70.0. You will need to use the quadratic formula for this question and Question 3. (2.A.) (30 points) Complete the first two columns of Table 1 for the two values that z can take. Use your answers to determine the qualitative predictions of this economy regarding the cyclical properties (procyclical, countercyclical, or acyclical) of consumption, real wages, labour hours, and labour produc- tivity when there are technology shocks. Provide economic intuition to explain each of these cyclical properties. Table 1: Aggregate Variables Without Government 2= 2 = 40 z=zh = 70 Variable Column 1 Column 2 Y* C* With Government 2= 2 = 40 Column 3 N* LP* = Y*/N* Household Utility (2.B.) (15 points) Suppose that for several periods, the economy was experiencing 2 = 70 and then z falls to z = 40 and remains at that level for several periods. During the periods when z = 40, the government follows a stabilization policy in which it forces the household to work the same number of hours as it did when z = 70. Complete Column 3 of Table 1 for a period in which z = 40 and the government follows its stabilization policy. Compare the values in Column 1 with the values in Column 3 and provide economic intuition for the direction of the differences for each variable. 2. Suppose there is an economy with one household who cares only about consumption of a final good (cocomts) and leisure. The household has h = 50. The household's preferences over consumption of coconuts and leisure is given by the following utility function: u(C,) = C + 200 ln(0). There is a single firm which makes coconuts. The firm uses household labour and a fixed amount of capital (coconut trees) equal to K = 64 to produce coconuts. The production function for producing coconuts is given by Y = 2 (ND)(K)". Here z randomly bounces around between L = 10.0 and 2h = 70.0. You will need to use the quadratic formula for this question and Question 3. (2.A.) (30 points) Complete the first two columns of Table 1 for the two values that z can take. Use your answers to determine the qualitative predictions of this economy regarding the cyclical properties (procyclical, countercyclical, or acyclical) of consumption, real wages, labour hours, and labour produc- tivity when there are technology shocks. Provide economic intuition to explain each of these cyclical properties. Table 1: Aggregate Variables Without Government 2= 2 = 40 z=zh = 70 Variable Column 1 Column 2 Y* C* With Government 2= 2 = 40 Column 3 N* LP* = Y*/N* Household Utility (2.B.) (15 points) Suppose that for several periods, the economy was experiencing 2 = 70 and then z falls to z = 40 and remains at that level for several periods. During the periods when z = 40, the government follows a stabilization policy in which it forces the household to work the same number of hours as it did when z = 70. Complete Column 3 of Table 1 for a period in which z = 40 and the government follows its stabilization policy. Compare the values in Column 1 with the values in Column 3 and provide economic intuition for the direction of the differences for each variable