Consider a competitive equilibrium with proportional taxes on wage income, where the

income eect dominates the substitution eect. Then in the competitive equilibrium,

(a) MRS`;C < MRT`;C and employment will be lower than what is Pareto optimal.

(b) MRS`;C < MRT`;C and employment will be higher than what is Pareto optimal.

(c) MRS`;C > MRT`;C and employment will be lower than what is Pareto optimal.

(d) MRS`;C > MRT`;C and employment will be higher than what is Pareto optimal.

In the Solow model, an increase in the rate of depreciation and a concurrent decrease in

the savings rate, will lead in the steady-state,

(a) to lower output per worker, with an ambiguous eect on consumption per worker.

(b) to lower output per worker, and lower consumption per worker.

(c) to higher output per worker, with lower consumption per worker.

(d) to an ambiguous eect on both output per worker, and consumption per worker.

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