Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393615340
Author: Jones, Charles I.
Publisher: W. W. Norton & Company
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Question
Chapter 1, Problem 6E
(a)
To determine
Determine the economic interpretation of
(b)
To determine
Determine the endogenous variable in this labor market model.
(c)
To determine
Explain the labor
(d)
To determine
What happens to equilibrium wage and employment level if
(e)
To determine
What happens to equilibrium wage and employment level if
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Suppose the aggregate price level has decreased, but workers did not notice this initially. Suppose the supply curve of labor initially looked as follows.
According to our self-correcting model, once workers notice that the aggregate price level has decreased,
Group of answer choices
a) the SL curve will increase (shift right).
b) none of the other options.
c) the SL curve will decrease (shift left).
d) nothing will happen to the Supply of Labor (SL) curve.
e) the equilibrium wage level, W, will rise.
Which of the following models, if any, rests on the assumption of competitive factor markets?
Gravity model
Ricardian model
Heckscher-Ohlin model
Consider the following model of a competitive labour market where both firms and workers have perfect foresight and symmetric information about the price level (that is, no misperceptions). Firms' technology is given by the production function
y = a N ½ (production function)
where a is a positive constant representing total productivity, N is employment and the elasticity of production to employed labour is 1/2. The government requires firms to pay pension contributions to the fiscal authority: the contribution is a small fraction x of the wage paid to each employed worker. Therefore, firms profits equal
P y - W N - x W N
and they are maximized taking the price level P, the nominal wage W, and the pension contribution rate x as given. Labour supply is given by:
W = P b N
where b is a positive constant. Answer all the following questions. a) Derive the labour demand schedule by solving the profit maximization problem of firms.
Chapter 1 Solutions
Macroeconomics (Fourth Edition)
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