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Question1_2400_Final_Fall08 - good Y = zK α N d 1-α(2...

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York University Department of Economics Professor Ahmet Akyol AS/ECON 2400 - INTERMEDIATE MACROECONOMIC THEORY I Final Exam Fall 2008. 1. -35 points- Consider the representative consumer with preferences over the consump- tion good, c , and leisure, l described by the utility function U ( c,l ) = ln c + bl (1) where b > 0. She faces a wage rate, w , in the labor market. She also receives dividend income π from the firm. In addition, she pays T units of the consumption good to the government as a lump-sum tax. (a) Set up the Lagrangian and solve for the demand of the consumption good, c , and the leisure, l . (b) Suppose that there is an increase in lump-sum taxes, T . Determine the effect of this change on c and l . (c) Assume now that π = T . Suppose that there is an increase in the wage rate, w . Determine the effect of this change on c and l . Determine the labor supply, N s . Graph her labor supply function. Explain your results. (d) The representative firm has the following technology to produce the consumption
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Unformatted text preview: good: Y = zK α ( N d ) 1-α (2) where z is the exogenous total factor productivity, K is the firm’s capital stock, and N d is the hours of labour employed by the firm. The firm faces a wage rate w in the labor market. Calculate the firm’s demand for labour. (e) The government purchases an exogenous level G of total output from the firm. It finances this purchase with lump-sum taxes, T , collected from the consumer. Define a competitive equilibrium for this economy. (f) Assume that π = T . Determine the equilibrium wage rate, w * , the equilibrium level of employment, and the equilibrium level of consumption. (g) Suppose that the total productivity, z , increases. Determine the impact of this increase in z on consumption, output, labour hours, and wage rate in equilibrium. 1...
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