Suppose the following model of government efficiency.

Utility function over consumption of private goods(C) and public goods(G)

U(C,L) =min{C, 4G}

ExogenousIncome: Y= 18

Lump-sum tax: T

Governmentefficiency: q= 0.2

(This measures the number of public goods that can be produced from one unit of private consumptiongood)

If we want to maximize the representativeconsumer's utility and balance the governmentbudget, what is the optimallump-sum tax?

A. 10

B. 20

C. 0

D. 5

E. none of the above

Consider the followingconsumer's problem facing a proportional income tax.

Utility function over consumption(C) and leisure(L)

U(C,L) =ln(C) +2ln(L)

Totalhours: H= 40

Labourhours: Upper N Superscript Upper S

NS = H- L

Proportional income tax rate= 0.2

Productionfunction: Y= zUpper N Superscript Upper D

ND

Total factorproductivity: z= 5

The representative consumer maximizesutility, the representative firm maximizesprofit, and the government balances budget. What is the tax revenue atequilibrium?

A. 53.33

B. 26.67

C. 0

D. 13.33

E. none of the above

Consider the followingtwo-period problem for the representative consumer

Y1= 12

T1= 2

Y2= 54

T2= 10

r= 0.10

C1= consumption in the first period

C2= consumption in the second period

S= saving in the first period

U(C1, C2)= ln(C1)+ ln(C2)

What is the optimalsaving, S*, that maximizes the representativeconsumer's lifetimeutility?

A. - 17.2

B. - 15

C. + 15

D. - 16

E. none of the above

Consider the followingone-period, closed-economy model.

Utility function over consumption(C) and leisure(L)

U(C,L) = Upper C Superscript one third

C13Upper L Superscript two thirds

L23

Totalhours: H= 40

Labourhours: Subscript nothing

Upper N Superscript Upper S

NS = H- L

Government expenditure= 30

Lump-sum tax= T

Productionfunction: Y= zUpper N Superscript Upper D

ND

Total factorproductivity: z= 3

The representative consumer maximizesutility, the representative firm maximizesprofit, and the government balances budget. Suppose there is an decrease in total factorproductivity, z, to 2.

What is the income effect of this change on laboursupply?

A. - 6.22

B. - 2.89

C. + 6.22

D + 2.89

E. None of the above