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Utility function over consumption and leisure. U(C,L) = C 1/3 L 2/3 Total hours: 40 Labour hours: N s =H-L Government expenditure = 30 Lumpsum

Utility function over consumption and leisure.

U(C,L) = C1/3L2/3

Total hours: 40

Labour hours: Ns=H-L

Government expenditure = 30

Lumpsum tax = T

Production function: Y =zNd

Total factor productivity z=3

the representative consumer maximizes utility, the representative firm maximizes profit and the gov. balances budget. Suppose there is a decrease in the total factor of productivity, z=2

what is the income effect of this change on the labour supply?

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