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Category > Management Posted 15 Oct 2017 My Price 9.00

general equilibrium values

This question asks you to use the formulas in Appendix 9.B to find the general equilibrium values of variables for the economy described in Numerical Problem 4. Assume that G = 50.

b. Substitute the values of these behavioral parameters into the relevant equations in Appendix 9.B to compute the general equilibrium values of the real wage, employment, output, the real interest rate, and the price level.

c. Assume that government purchases, G, increase to 72.5, and repeat Part (b).

Problem 4

The production function in an economy is

where A is productivity. With this production function, the marginal product of labor is

Suppose that A = 2. The labor supply curve is

where NS is the amount of labor supplied, w is the real wage, and t is the tax rate on wage income, which is 0.5.

Desired consumption and investment are

Money demand is

The expected rate of inflation, πe, is 0.02, and the nominal money supply M is 9150.

a. What are the general equilibrium levels of the real wage, employment, and output?

b. For any level of output, Y, find an equation that gives the real interest rate, r, that clears the goods market; this equation describes the IS curve.

c. For any level of output, Y, find an equation that gives the real interest rate that clears the asset market; this equation describes the LM curve.

d. Suppose that government purchases increase to G = 72.5. Now what are the general equilibrium values of the real wage, employment, output, the real interest rate, consumption, investment, and price level?

 

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Maurice Tutor
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Status NEW Posted 15 Oct 2017 02:10 PM My Price 9.00

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