Labor Economics
8th Edition
ISBN: 9781260484434
Author: George Borjas
Publisher: Mcgraw-hill Higher Education (us)
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Question
Chapter 4, Problem 11P
To determine
The results associated with elastic and very inelastic labor supply and the economic intuition of these results.
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The figure to the right shows the economy initially in equilibrium at output
Upper Y 0Y0.
Suppose that the price level in the economy increases.
Using the line drawing tool, show the impact this increase has on the AE curve. Properly label this line
AE Subscript 1.
Note: Carefully follow the instructions above and only draw the required object.
According to your graph, the relationship between the price level and the level of aggregate output (income) is (indeterminate, positive, negative) --> pick one answer.picture is attached.
Use graph A on the right to determine what happens to the equilibrium values of the interest rate and output when there is
an increasean increase
in government spending (G) with the Fed changing the money supply
(M Superscript S)
by enough to keepby enough to keep
interest rates constantinterest rates constant.
1.) Using the 3-point curved line drawing tool, illustrate the impact of the
increaseincrease
in G. Properly label your curve.
2.) Using the line drawing tool, illustrate the impact of the Fed's money supply decision. Properly label your curve.
3.) Using the point drawing tool, identify the economy's new equilibrium point.
Use graph B on the right to determine what happens to the equilibrium values of the interest rate and output when there is
anan
increaseincrease
in
Upper GG
with no change in
the money supplythe money supply.
1.) Using either the 3-point curved line drawing tool to shift the IS curve or using the line drawing tool to shift the Fed rule…
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