MGEB06H3 Lecture Notes - Lecture 4: Real Wages, Real Interest Rate
5 Oct 2015
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A closed economy can be described by the long-run classical model: C = 11800 + 0. 8(y t) 750r. Note: r represents the real interest rate and is measured in percentage points (for example, if r = Keep your answer to 4 decimal points if needed. Assume that there are two factors of production, capital (k) and labour (l), and that they are both fully employed. For this economy the supply of capital and labour are 4096 and 50625 respectively. Initially, the government collects 10% of the economy"s output as (income) taxes, and the size of the budget deficit is 500: compute the long-run equilibrium levels of consumption, investment and real interest rate. Also, find the long-run equilibrium real wage for labour and real rental price of capital. Suppose the government provides a tax credit on investment.
