Consider an economy in which the representative consumer preferences are described by U(C, l) = 0.9 ln(C)
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Consider an economy in which the representative consumer preferences are described by
U(C, l) = 0.9 ln(C) + 0.1 ln(l).
The total number of hours available to the representative consumer is h = 1, and the market real wage is w. The representative firm produces the final consumption good using the technology function Y = zN where N is the labour, and z = 2. Assume the government sets the level of its spending to G = 0.75 which has to be financed through a proportional tax t.
- Given the linear specification of the production function, what will be the equilibrium wage w. [03 points]
- Find the Competitive Equilibrium allocation (t, l, N, Y ). [07 points]
- Find the the Pareto Optimal Allocation by solving the social planner's problem.
- What do you conclude? [03 points]
Related Book For
Macroeconomics
ISBN: 978-0321675606
6th Canadian Edition
Authors: Andrew B. Abel, Ben S. Bernanke, Dean Croushore, Ronald D. Kneebone
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