Units of labor Opportunity cost of a worker in terms of units output = real wage required by an additional worker Real value of Output per additional worker Maximum real wage a producer is willing to pay for an additional worker (1) (2) (3) 8 1 9 10 2 8 12 3 7 16 4 6 18 5 5 20 6 4 22 7 3 a) Carefully draw for yourself the demand and supply curves of labor on a diagram and find the equilibrium real wage and the equilibrium level of employment. To each level of employment corresponds a level of real GDP given in the following table. Production Function Schedule Level of Employment Aggregate quantity supplied = real GDP 10 10 12 40 14 65 16 85 18 100 20 105 b) Find the full employment real GDP, aggregate quantity supplied, and nominal wage for each of the following price levels P = 1, 2 ,3, 4. Does the equilibrium levels of employment and AQS change as the price level changes? Is the long run aggregate supply curve downward or upward sloping or is it a vertical line? Suppose that the velocity of money is constant= 5 and the money supply is = 80. c) For each one of the following levels P = 1, 2, 3, 4 and 5, find the aggregate quantity demanded AQD according to the quantity theory. What is the equilibrium price level, the equilibrium real GDP, equilibrium aggregate quantity AQS and the equilibrium aggregate quantity demanded? What is the equilibrium nominal wage?
|
Units of labor |
|
Real value of Output per additional worker Maximum real wage a producer is willing to pay for an additional worker |
|
(1) |
(2) |
(3) |
|
8 |
1 |
9 |
|
10 |
2 |
8 |
|
12 |
3 |
7 |
|
16 |
4 |
6 |
|
18 |
5 |
5 |
|
20 |
6 |
4 |
|
22 |
7 |
3 |
a) Carefully draw for yourself the
To each level of employment corresponds a level of real GDP given in the following table.
Production Function Schedule
|
Level of Employment |
Aggregate quantity supplied = real GDP |
|
10 |
10 |
|
12 |
40 |
|
14 |
65 |
|
16 |
85 |
|
18 |
100 |
|
20 |
105 |
b) Find the full employment real GDP, aggregate quantity supplied, and nominal wage for each of the following price levels P = 1, 2 ,3, 4. Does the equilibrium levels of employment and AQS change as the price level changes?
Is the long run
Suppose that the velocity of money is constant= 5 and the money supply is = 80.
c) For each one of the following levels P = 1, 2, 3, 4 and 5, find the aggregate quantity demanded AQD according to the quantity theory. What is the
Suppose now that= 5 does not change but the money supply decreases to = 60.
d) What is the new equilibrium price, and the new equilibrium real GDP? What is the new equilibrium nominal wage? What happened to the equilibrium price level P and the equilibrium nominal wage?
e) Comparing your answers to c) and d) what happened to the equilibrium real GDP, and employment?
f) Are your answers to the previous two questions consistent with the observed data on the money supply, the price level, nominal wages real GDP and
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