1. Draw the labor market equilibrium diagram and the saving-investment diagram.a. Consider an increase in future expected total factor productivity. Draw the changesthat this type of shock implies for the graphs, and state implications for changes inemployment, wages, consumption, investment, interest rate, and output. (Assume forsimplicity that current labor supply does not respond to changes in the rate ofinterest.)b. Total factor productivity shocks tend to be positively correlated over time. Considerthe case of an increase in both current and expected future total factor productivity.Repeat part a. (Again, assume that current labor supply does not respond to changesin the rate of interest.)

Answered: 1. Draw the labor market equilibrium…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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1. Draw the labor market equilibrium diagram and the saving-investment diagram.
a. Consider an increase in future expected total factor productivity. Draw the changes
that this type of shock implies for the graphs, and state implications for changes in
employment, wages, consumption, investment, interest rate, and output. (Assume for
simplicity that current labor supply does not respond to changes in the rate of
interest.)
b. Total factor productivity shocks tend to be positively correlated over time. Consider
the case of an increase in both current and expected future total factor productivity.
Repeat part a. (Again, assume that current labor supply does not respond to changes
in the rate of interest.)

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Labor Market Equilibrium is defined as the state in which the demand for labor from firms equals the amount of labor supplied to firms at a given wage rate. It is an important indicator for stability in an economy as equilibrium in labor market brings equilibrium in supply and demand for commodities.

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