This problem is broken into two parts that are totally connected to each other. In this first part of the question, you apply Chapter 3 (labor mkt., etc) material and in PART 2, you get to use Chapter 4 (goods market equilibrium) material. Please take all calculations to two decimal places where appropriate except with real interest rate calculations (PART 2), where you need to take the calculation to three decimal places, if appropriate. PLEASE SHOW ALL WORK AND COMPLETELY LABEL ALL DIAGRAMS. The following equations characterize a country's closed economy: • Production function: Y = A.K.N - N²/2 • Marginal product of labor: MPN = A.K - N. • where the initial values of A = 8 and K = 10. The initial labor supply curve is given as: N³ = 20 + 9w. 75 pts . a) (10 points) Find the equilibrium levels of the real wage, employment and output (show work). Draw two diagrams vertically with the labor market on the bottom graph and the production function on the top graph. Be sure to label everything including these initial equilibrium points as point A. (10 points for completely labeled and correct diagrams) We now have numerous changes to our economic conditions (all is not constant). Think of all these changes happening together, that is, we go from one state of economic affairs to a different state of economic affairs. Below are the changes. . The labor supply changes and is now: Nº = 24 +9w. K* goes down from 10 to 8. b) (5 points) What could cause such a change in labor supply? Please give two specific and well supported reasons. Be sure to explain your answer. c) (10 points) Given the change in NS and K*, repeat part a) (i.e., find the equilibrium levels of the real wage, employment and output). Add these results to your labor market and production function diagrams respectively and label as point(s) B. Be sure to label the diagram completely with the relevant shift variables in parentheses next to the function. PART 2 (40 points total for PART 2) Before we start this problem, write down the initial Y as computed in part a) and the new Y (after the change in conditions). Initial conditions in the goods market: . Cd 1000+.50(Y-T) - 500r Id = 601 - 500r G = 100 T= 100 d) (10 points) Given the initial conditions, solve for the equilibrium real rate of interest (that clears the goods market) and the associated levels of desired savings and desired investment. Draw a Sd = 1d diagram locating this initial equilibrium as point A. (10 points for correct and completely labeled diagram (be sure to put relevant shift variables in parentheses next to each function). NOW WE TAKE INTO ACCOUNT THE CHANGES FROM PART 1 ALONG WITH A CHANGE IN THE CONSUMPTION FUNCTION. The new consumption function is cd = 450+.50(Y-T) - 500r e) (5 points) What could cause such a change in the consumption function? Please give two specific and well supported reasons. Be sure to explain your answer. f) (10 points) Given these changes, i.e., changes in Y from part 1 and the change in the consumption function, calculate the new equilibrium levels of the real interest rate, desired savings and investment. Please add this new equilibrium point to your diagram and label as point B. g) (5 points) Considering this entire problem, are your results consistent with the Great Recession - why or why not? Please be a specific as possible with regard to the changes in your savings function, consumption function, and the change in labor supply (please refer to each for full credit!)

Question

06-06-2023
Business

contestada

This problem is broken into two parts that are totally connected to each other. In this first part of the question, you apply Chapter 3 (labor mkt., etc) material and in PART 2, you get to use Chapter 4 (goods market equilibrium) material. Please take all calculations to two decimal places where appropriate except with real interest rate calculations (PART 2), where you need to take the calculation to three decimal places, if appropriate. PLEASE SHOW ALL WORK AND COMPLETELY LABEL ALL DIAGRAMS. The following equations characterize a country's closed economy: • Production function: Y = A.K.N - N²/2 • Marginal product of labor: MPN = A.K - N. • where the initial values of A = 8 and K = 10. The initial labor supply curve is given as: N³ = 20 + 9w. 75 pts . a) (10 points) Find the equilibrium levels of the real wage, employment and output (show work). Draw two diagrams vertically with the labor market on the bottom graph and the production function on the top graph. Be sure to label everything including these initial equilibrium points as point A. (10 points for completely labeled and correct diagrams) We now have numerous changes to our economic conditions (all is not constant). Think of all these changes happening together, that is, we go from one state of economic affairs to a different state of economic affairs. Below are the changes. . The labor supply changes and is now: Nº = 24 +9w. K* goes down from 10 to 8. b) (5 points) What could cause such a change in labor supply? Please give two specific and well supported reasons. Be sure to explain your answer. c) (10 points) Given the change in NS and K*, repeat part a) (i.e., find the equilibrium levels of the real wage, employment and output). Add these results to your labor market and production function diagrams respectively and label as point(s) B. Be sure to label the diagram completely with the relevant shift variables in parentheses next to the function. PART 2 (40 points total for PART 2) Before we start this problem, write down the initial Y as computed in part a) and the new Y (after the change in conditions). Initial conditions in the goods market: . Cd 1000+.50(Y-T) - 500r Id = 601 - 500r G = 100 T= 100 d) (10 points) Given the initial conditions, solve for the equilibrium real rate of interest (that clears the goods market) and the associated levels of desired savings and desired investment. Draw a Sd = 1d diagram locating this initial equilibrium as point A. (10 points for correct and completely labeled diagram (be sure to put relevant shift variables in parentheses next to each function). NOW WE TAKE INTO ACCOUNT THE CHANGES FROM PART 1 ALONG WITH A CHANGE IN THE CONSUMPTION FUNCTION. The new consumption function is cd = 450+.50(Y-T) - 500r e) (5 points) What could cause such a change in the consumption function? Please give two specific and well supported reasons. Be sure to explain your answer. f) (10 points) Given these changes, i.e., changes in Y from part 1 and the change in the consumption function, calculate the new equilibrium levels of the real interest rate, desired savings and investment. Please add this new equilibrium point to your diagram and label as point B. g) (5 points) Considering this entire problem, are your results consistent with the Great Recession - why or why not? Please be a specific as possible with regard to the changes in your savings function, consumption function, and the change in labor supply (please refer to each for full credit!)

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