Suppose the following model of government efficiency. Utility function over consumption of private goods (C) and public goods (G) U(C,L) = C^1/2G^1/2 Exogenous Income: Y = 50 Lump-sum tax: T Budget constraint: C + T = Y PPF: C = Y - G/q Government efficiency: q = 0.8 (This measures the number of public goods that can be produced from one unit of private consumption good) We want to maximize the representative consumer's utility and balance the government budget. Find C*, G*, T*

22) Suppose the following model of government efficiency. Utility function over consumption of private goods (C) and public goods (G) U(C,L) = C1/2G1/2 Exogenous Income: Y = 50 Lump-sum tax: T Budget constraint: C + T = Y PPF: C = Y - G/q Government efficiency: q = 0.8 (This measures the number of public goods that can be produced from one unit of private consumption good) We want to maximize the representative consumer's utility and balance the government budget. Find C*, G*, T* Answer: C* = 25, G* = 20, T* =25