4. Consider the Keynesian Efficiency Wage Model. a. Draw the effort curve as it was discussed in class and explain the shape. b. Explain and show graphically how firms set real wages in the Keynesian Efficiency Wage model?
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- Consider the Keynesian Efficiency Wage Model. a. Draw the effort curve as it was discussed in class and explain the shape. b. Explain and show graphically how firms set real wages in the Keynesian Efficiency Wage model? c. What are the implications for the full-employment level of employment Ñ and the level of unemployment u? d. Explain why firms hesitate to lower wages even if the level of unemployment is high, e.g., during recessions.2. Explain the key principles and policy implications of the neoclassical model of the labour market. Critically discuss whether the theory underlying the wage- setting curve is empirically sound.1. An economy's firms produce goods along the Cobb-Douglas production function: Y = A * K^0.5 * L^0.5 For it, the marginal product of a worker is MPL = 0.5 * A * K^0.5 / L^0.5, in which K = 16 Workers bargain for wage by looking at the rate of unemployment and inflationary surpise: w = 2 * EP/P *L^0.5 K = 16. The economy is in equilibrium at EP=P=1 and A=9. In it, the number of workers is L=9 and the wage is =6. Now, thanks to temporarily abundant oil, the productivity changed from A=9 to A=16. Find the new equilibrium number of workers. 2. Find the new equilibrium wage at A=16. 3. Graph the change in the labor market equilibrium. Mark the before and after equilibria with E0 and E1. Label axes and curves, map relevant values onto axes.
- 1) Assume that the real wage in an economy is held above equilibrium. a. Graphically illustrate how an increase in demand for labor will change the number of unemployed workers. Be sure to label the axes and the quantities of labor hired before and after the increase in demand. b. Explain in words what happens to the number of unemployed as a result of this change. 2) In an economy, if 5 percent of the employed lose their job every month (s = 0.05) while 15 percent of the unemployed find a job every month (f = 0.15), what is the steady rate (equilibrium rate) of unemployment of the economy?1. Why is the interest rate irrelevant in the one-period general equilibrium model? What is the mechanism for the interest rate affecting labour supply in the two period model?Assume that an economy operates according to the sticky-wage model. The nominal wagewas set to make labor supply and labor demand equal when the expected price levelequaled 120 (as measured by the consumer price index).a. Use a graph of the labor market to illustrate what happens to the quantity oflabor employed if the actual price level over the time period when wages arestuck equals 110.b. Use a graph of the production function to illustrate how the quantity of outputproduced changes if the actual price level equals 110 when the expected pricelevel is 120.c. Given the unexpectedly low price level, will this economy be operating above,below, or at the natural rate?
- Explain how equilibrium wages and employment change in the economy when there is an increase in thenumber of working-age immigrants. Be clear on the short-run and long-run response.b) Suppose that some of the immigrants set up businesses rather than become employees. Explain howyou expect this to affect the wage-setting curve, the price-setting curve and the labour market equilibrium.c) Answerbriey, do the results you have obtained in (a) and (b) suggest that immigration is good for theeconomy?Derive the price-setting curve . What does the equation for the PS curve tell us about the ability of firms to make supernormal profits?. Explain in words why the decision of firms about what price to set has implications for the real wage in the economy. Provide two different explanations for why the PS curve might be flat .Consider an economy with production function given by Y = AK0:5L0:5 where A is the total factorproductivity (TFP), K is the capital stock and L is the labor input. For simplicity assume capital is xed and equal to 1. Assume A=100.a. Write the rm's problem of choosing labor demand. Derive the demand for labor as a functionof the real wage.b. Assume labor supply is inelastic and xed at L= 100. Find the equilibrium values of the wageand the employment level for this economy. Display graphically the labor supply and the labordemand curves. Carefully label your graph.c. Suppose the economy faces a positive productivity shock and TFP is now A=200. Displaygraphically the new labor demand function. What are the equilibrium values of employment andthe real wage?d. Compute the total output when A=100 and when A=200. What is the output's growth rate?Compare that growth rate with the growth rate in A. How does the growth rate of output percapita compares to the growth rate in A? Explain…
- Consider an economy with the Cobb-Douglas production function: Y = 3K0.2L0.8 K = 140000; L=8000 Round answers to two places after the decimal when necessary. c. Now suppose that Congress, concerned about the welfare of the working class, passes a law setting a minimum wage that is 9 percent above the current equilibrium wage. Assuming that Congress cannot dictate how many workers are hired at the mandated wage, calculate what happens to the real wage, employment, output, and the total amount earned by workers. Real wages = $ Total output = d. Does Congress succeed in its goal of helping the working class? O Yes, Congress does succeed in its goal of helping the working class. units No, Congress does not succeed in its goal of helping the working class. Employment = Total earned by workers = $ workers e. Does this analysis provide a good way of thinking about a minimum-wage law? O No, this analysis does not provide a good way of thinking about a minimum-wage law. Yes, this analysis does…The diagram on the right shows a perfectly competitive labour market. The initial equilibrium is with wage w* and employment L*. a. Suppose the demand for labour decreases to D'L. If wages are perfectly flexible, what is the effect on the wages and employment? If wages are perfectly flexible, wages will decrease decrease and employment will Use the point drawing tool to plot the new equilibrium point. Carefully follow the instructions above, and only draw the required object. Real Wage Part a Employment OUWhat diagrams should I use in the question "Explain the consumption duality to derive Marshallian and Hicksian demand curves. Discuss why this is important for neoclassical microeconomic theory." and how should i explain them
