In country BBC only labor is used in production. The production function is Y = 2N, where z is the labor productivity. In country RBC economic booms and recessions are due to cyclical movements of labor productivity. For simplicity suppose that 2 takes two values: either 2 = 195 or z = 205. The chance that z = 205 is 0.7 and the chance that z = 195 is 0.3. Roughly country BBC is in economic boom 70% of time and recession 30% of the time. The representative household in country BBC has a preference represented by the following: u(c, l) = J5 + 20W (4 points) The above stabilization policy leads to a waste of resources, hence may not be favored by households. Instead the government stabilizes production through wage subsidies nanced by a lump-sum tax, which is equivalent to a tax cut nanced with debt. The representative household's budget constraint becomes the following: c=w(1+s)(1l)T