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42 POINTS Consider the following one-period model. Assume that the consumption good is produced by a linear technology: Y = 2ND where Y is the

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42 POINTS Consider the following one-period model. Assume that the consumption good is produced by a linear technology: Y = 2ND where Y is the output of the con- sumption good, 2 is the exogenous total factor productivity, N D is the labour hours. Government has to nance its expenditures, G, using a lump-sum tax, T, on the rep- resentative consumer. There is no other tax in the economy. The rm is owned by the representative consumer who is endowed with h hours of time she can allocate between work, N S and leisure, 1. Preferences of the representative consumer are: U(c,l)=o:h1c+(1o:)h1l (1) where 0

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