When taxes are included in the stylized DSGE model, with Cobb-Douglas production, labor demand is given by:
A) $w = ( 1 - \tau ) \cdot 2 / 3 \cdot \frac { \bar { A } K ^ { 1 / 3 } } { L ^ { 1 / 3 } }$
B) $w = \bar { \ell } \cdot \frac { ( 1 - \tau ) w } { c }$
C) $w = ( 1 - \tau ) \cdot 2 / 3$
D) $w = ( 1 - \tau ) \cdot 2 / 3 \cdot L ^ { 1 / 3 }$
E) $w = ( 1 - \tau ) \cdot 1 / 3 \cdot \frac { \bar { A } L ^ { 2 / 3 } } { K ^ { 2 / 3 } }$

Question

Quizplus · Accepted Answer

The correct answer is A because the labor demand in the stylized DSGE model with Cobb-Douglas production and taxes is given by the equation: $w = ( 1 - \tau ) \cdot 2 / 3 \cdot \frac { \bar { A } K ^ { 1 / 3 } } { L ^ { 1 / 3 } }$.

When Taxes Are Included in the Stylized DSGE Model, with Cobb-Douglas