Suppose the representative firm's production function is Y=z(h-l), where z = total factor productivity. Given constant returns to labour, equilibrium profits are zero and can be ignored. Assume there is no government sector (G=T=0). A. 1. With the help of a graph, explain the determination of the economy's equilibrium wage, consumption, leisure, employment and output. (4 points)

2. Suppose there is a decrease in total factor productivity. Explain how equilibrium consumption, leisure, output, employment, and wages would be affected, assuming that both consumption and leisure are normal. (4 points)

B. Start with the equilibrium in A.2. above. Suppose now you introduce the government which consumes G and finances this through lump-sum taxes (T) of equal amount. Draw a new graph and explain how this will affect the equilibrium wage, leisure, consumption, employment, and output. (4 points)