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Table 1: Aggregate Variables Without Government With Government Z = 21 = 12 2 = ZH = 15 Z = 21 = 12 Variable Column

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Table 1: Aggregate Variables Without Government With Government Z = 21 = 12 2 = ZH = 15 Z = 21 = 12 Variable Column 1 Column 2 Column 3 Y* C* 20* N* LP* = Y*/N* Household Utility 2655.521. Suppose there is an economy with one household who cares only about consumption of a nal good (clocks) and leisure. The household has h = 100. The household's preferences over consumption of clocks and leisure is given by the following utility function: u{C, E') = 20 + 5001MB). There is a single lm which makes clocks. The rm uses household labour and a xed amount of capital equal to K = 16 to produce clocks. The production function for producing clocks is given by Y = z (ND)'5(K)'5. Here z randomly uctuates between 2;, = 12 and 23 = 15. You will need to use the quadratic formula for this question. (1.A.) (35 points) Complete the rst two columns of Table 1 for the two values that 2: 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, average labour pro ductivity, and prots when there are technology shocks. Provide economic intuition to explain each of these cyclical properties

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