Consider the real inter-temporal model of chapter 11. Suppose that the equation of output demand curve is given by rY^ d =8. output supply is Y ^ s = 9r the production function is of the form Y = 12K ^ 0.5 * N ^ 0.5 where K = K = 1 is a fixed number. Lastly, the labor supply curve is described by w = 2 * (N_{s} ^ 0.5)/r (a) Draw the Y and Yd curves and calculate the equilibrium levels of real output and real interest rate. (b) Using the equilibrium interest you obtained in the previous part, draw the the labor demand and labor supply curves and calculate the equilibrium levels of real wage rate and employment. (c) Assume that the production function now becomes Y=3K^ 0.5 N^ 0.5 . How does this change the equilib rium values of all the variables? Explain.
Consider the real inter-temporal model of chapter 11. Suppose that the equation of output demand curve is given by rY^ d =8. output supply is Y ^ s = 9r the production function is of the form Y = 12K ^ 0.5 * N ^ 0.5 where K = K = 1 is a fixed number. Lastly, the labor supply curve is described by w = 2 * (N_{s} ^ 0.5)/r
(a) Draw the Y and Yd curves and calculate the equilibrium levels of real output and real interest rate.
(b) Using the equilibrium interest you obtained in the previous part, draw the the labor demand and labor supply curves and calculate the equilibrium levels of real wage rate and employment.
(c) Assume that the production function now becomes Y=3K^ 0.5 N^ 0.5 . How does this change the equilib rium values of all the variables? Explain.
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