Assume production in an economy takes place according to Y = 200-L
and that labor is supplied according to L* = (W/P)^2 where W is the nominal wage and P is the price level meaning that W/P is the real wage.
There is no government in this economy and so G = T = 0. Consumption is given by: C = 600 + 0.5Y - 500r and investment by: I = 500 - 500r
Finally, money demand is even by Md P = Y - 2000r In this question we solve for equilibrium in period one. Assume that in this period the economy is in long-run equilibrium.
(a) Find the equilibrium real wage, level of employment, and output for this economy.
(b) Assume that the money supply is given by M = 1800 and find the equilibrium real interest rate, levels of consumption and investment, the equilibrium price level, and the nominal wage.
Assume production in an economy takes place according to Y = 200-L
and that labor is supplied according to L* = (W/P)^2 where W is the nominal wage and P is the price level meaning that W/P is the real wage.
There is no government in this economy and so G = T = 0. Consumption is given by: C = 600 + 0.5Y - 500r and investment by: I = 500 - 500r
Finally, money demand is even by Md P = Y - 2000r In this question we solve for equilibrium in period one. Assume that in this period the economy is in long-run equilibrium.
(a) Find the equilibrium real wage, level of employment, and output for this economy.
(b) Assume that the money supply is given by M = 1800 and find the equilibrium real interest rate, levels of consumption and investment, the equilibrium price level, and the nominal wage.
