Use the Blanchard-Summers model (see textbook, section 7.3) on fiscal increasing returns. Y = F(L,K), w = FL (L,K), tY = G+ Bw(1-t) [NL]. (Q7.1) (Q7.2) (Q7.3) (a) Provide a brief interpretation of the equations. (b) Assume that the after-tax real wage is constant. This may be, for example, because of union influence. Show that the model admits two equilibria, namely a 'good' and a 'bad' equilibrium. (c) In order to judge the stability properties of the model we postulate that the tax rate moves gradually over time to re-establish government budget balance. Equation (Q7.3) is replaced by: ty[G+bw(1-t) [NL] - tY]. = (Q7.4) Show that the model is unstable around the bad equilibrium but stable around the good equilibrium. What do you conclude from this result?