MacroEconomics
Suppose that households’ wealth substantially increases. a. Using the labor market diagram, show the effects of this change on demand for and supply of labor. Explain what happens to the equilibrium labor input and real wage rate. b. Using the capital market diagram (which shows the desired capital stock), show the effects of the change in wealth on MPK (demand for capital) and the user cost of capital (supply of capital).
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2. Use the IS-LM model to analyze the general equilib- rium effects of a permanent increase in the price of oil (a permanent adverse supply shock) on current out- put, employment, the real wage, national saving, con- sumption, investment, the real interest rate, and the price level. Assume that, besides reducing the current productivity of capital and labor, the permanent sup- ply shock lowers both the expected future MPK and households' expected future incomes. (Assume that the rightward shift in...
Suppose the marginal product of labor in the economy is given by MPN 0.002 (16, 000- N) 3. (20 points) while the supply of labor is SN 1000+ 1000w. a. Find the market-clearing real wage rate and level of employment b. What happens to the wage rate and employment if wealth rises, reducing the supply of labor to SN =500+ 1000w? c. What happens to the wage rate and employment if after wealth has risen as in part (b), there...
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