Suppose there is an economy with one household who cares only about consumption of a final good (coconuts) and leisure. The household has h = 50. The households preferences over consumption of coconuts and leisure is given by the following utility function: U(C, l) = C + 200 ln(l) There is a single firm which makes coconuts. The firm uses household labour and a fixed amount of capital (coconut trees) equal to K = 64 to produce coconuts. The production function for producing coconuts is given by: Y = z(ND)0.5(K)0.5 Here z bounces around between zL = 40. 0 and zH = 70. 0. You will need the quadratic formula for this question.

A) (25 points) Complete the first two columns of the table below for the two values that z can take. Use your answers to determine the qualitative predictions of this economy regarding the cyclical properties (procyclical, countercyclical, or acyclical) of consumption, real wages, labour hours, and labour productivity when there are technology shocks. Provide economic intuition to explain each of these cyclical properties.

Variable		Without Government				With Government
		z = zL = 40		z = zH = 70		z = zL = 40
		Column 1		Column 2		Column 3
Y*
C*
*
LP* = Y*/N*
U*