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sure you’ve uploaded the assignment on time. You must answer all the questions and only one
randomly selected problem will be graded by the TA. Note that incomplete assignments will re-
ceive a grade of 0 even if the randomly chosen question is complete. Also note that one of the
unmarked questions from the assignment will show up on the midterm or nal!
Problem 1: For a one-period model, suppose that the representative consumer’s preferences
over consumption and leisure are described by the following utility function
U(C; l) = ln(Cl)
The total time endowment, h, is normalized to 1. The representative rm produces output,
Y , using the following production function
zF(K;N) = zKN1
The government’s public spending program expends, G, which is nanced by a balanced
budget lump-sum tax, T, on the consumer. The consumer owns all the equity in the rm and
receives dividends equal to .
1. State the representative consumer’s optimization problem and solve it.
2. State the representative rm’s optimization problem and solve it.
3. List all the endogenous and exogenous variables in this economy. Why are they labeled as
4. Dene the competitive equilibrium of this economy.
5. Compute the competitive equilibrium. That is, determine consumption, employment, out-
put, leisure, real wage, and prots in a competitive equilibrium, and explain your solutions.
Notes: You must hand in a PDF or Microsoft Word version of your assignment in the drop.
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