Question 3 Take the two-period model from lecture 7 and instead of taxes on labour income assume there is a tax on consumption. Assume the government runs a balanced budget in each period. The maximisation is as follows: = Inc1 - ylah + 8(Inc2 - y In12) + 1 Piki(n) "+ Piki - Pike- (1 + t) Pici] + 8X2 [Pyk, (n2)]- + Pyk2 - Pyks - (1 + t2) Pacz] (1) Derive the first-order-conditions for c1, c2, m, n2 and ky. (2) Compare the optimal consumption-leisure choice and the 'Euler equation' in this model to that of lecture 7. (3) How does labour supply and react to an increase in first period government spending? (4) What happens when there is a reduction of taxes in the first period followed by an increase in taxes in the second period