Q. Say the household has utility
u(c,l) = c + log(l) also is endowed with h=1 units of time also no units of capital. The government has planned expenditures of G=1. The firm's production technology is Y = N^1/ 2.

(a) State also solves the household's problem.

(b) State also solves the firm's problem.

(c) Do wages clear when the wage equals two? Do we know whether the equilibrium wage is higher or lower than two?

(d) Now say a wave of technological advances increases productive capacity toY = 4N^1/ 2. Do markets clear now when the wage equals two? Do we know whether the equilibrium wage is higher or lower than two?

(e) From our answers in (c) also (d), can we conclude anything about the effects of the increase in productivity on equilibrium wages?