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2. (25 points). Suppose that government spending makes private firms more productive,e.g., spending on roads and bridges might reduce transport costs.(a) Using the production possibilities graph described in chpt. 5 of the text and inLecture 5, show how an increase productive government spending could increasehousehold welfare.(b) Show that the equilibrium effects on consumption and hours worked are ambigu-ous, but but that output definitely increases. Hint: Consider the induced incomeand substi
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