Suppose that there is a representative consumer, a firm and the government in the closed economy.The consumer desires consumption goods and leisure and wants to maximize its utility subject toher budget constraint. The firm is producing the consumption goods by hiring labour from the consumer and its goal is to maximize its profit. There is also a government that purchases consumption goods produced by the firm and finances its expenses by imposing a lump-sum taxT on the consumer. There is no budget deficit in this environment