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Assume that output (Y) in the economy is given by a Cobb-Douglas production function, Y = zKa N-a where z represents total factor productivity,
Assume that output (Y) in the economy is given by a Cobb-Douglas production function, Y = zKa N-a where z represents total factor productivity, K is the fixed capital stock, and N is labor. Utility is given by U = ln(C) + blnl,b> 0 where C is consumption, and 1 denotes leisure. - = tY, and consumers Government collects taxes by taxing the firm's revenue at a flat rate of t. (After-tax revenue for the firm is (1 t)Y). The government uses the tax to fund its expenditure G do not value G. Assume that initially G = tY = G
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