Consider a closed economy. The only two factors of production in this economy are capital and labor. In this economy prices are fully flexible, factor markets are competitive, and the supply of the factors of production is fixed. Suppose there is a change in immigration policy in the country such that there is a huge influx of foreign workers into the labor market, other things being equal. Assume a Cobb-Douglas production function for this economy. Graph the effects that this new policy will have on: The labor market, and the market for capital. The loanable funds market Note: When drawing your graph correctly label all curves, axes, initial and final equilibrium values, and the direction of the change in any curve. Explain how the equilibrium values of labor, the real wage, saving, investment, and the real interest rate change.
Consider a closed economy. The only two factors of production in this economy are capital and labor. In this economy prices are fully flexible, factor markets are competitive, and the supply of the factors of production is fixed. Suppose there is a change in immigration policy in the country such that there is a huge influx of foreign workers into the labor market, other things being equal. Assume a Cobb-Douglas production function for this economy.
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Graph the effects that this new policy will have on:
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The labor market, and the market for capital.
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The loanable funds market
Note: When drawing your graph correctly label all curves, axes, initial and final equilibrium values, and the direction of the change in any curve.
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Explain how the equilibrium values of labor, the real wage, saving, investment, and the real interest rate change.
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