Consider an economy in which the representative consumer preferences are described by U(C, l) = C^(3/5) l^(2/5) . 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 = N^(1/2) , where N is the labour. Additionally, assume that the government in this economy wants to spend G=0.25.

1. Is N = 05 the equilibrium employment? Explain. [05 points]

2. Is w = 1.5 the equilibrium wage rate? Explain [05 points]

3. Solve for the equilibrium (N* , w*). [10 points]