5. Consumer preferences fluctuate across time. For example, during the COVID-19 pandemic,consumers value current leisure more than all other goods since market work exposes them to virusinfection. Thus, the disruption is identified as a huge adverse labor supply shock in the economy.Suppose that a representative consumer chooses (c, d, l, l') to maximize her utility u(c, c', l, l') sub-ject to a real lifetime budget constraintc+wl +1w'+ -I' ≤ wh+T+1+r 1+rw'h + π'1 + rThe consumer also make a decision on money holdingmDm² = pL(y,r)where P denotes the nominal price level, y is the real GDP, and r denotes the real interest rate.Assume that the money supply ms is fixed and exogenous.The firm in this economy chooses the amount physical capital investment i and the amount of laborthey hire in the first and second period, nD and nD', to maximize the profitII = π +πT'1+rwhereπ =zF(k,n) - wn-iT' = 2F (k', n') + (1 - 8)k' -w'n'k' = (1-8)k + i.Consider the adverse labor supply shock is powerful enough so that in equilibrium, leisure increasesand current consumption falls. Identify and explain how the following change (i.e., rise, fall, nochange, or ambiguous)Current outputb. Current investmentc. Current employmentd. Current real wagee. The real interest rate

Labor supply shock refers to a significant change that lessens the labor supply availability. The…

Consider the adverse labor supply shock is powerful enough so that in equilibrium, leisure increases and current consumption falls. Identify and explain how the following change (i.e., rise, fall, no change, or ambiguous) a. Current output b. Current investment c. Current employment d. Current real wage e. The real interest rate

Consider the adverse labor supply shock is powerful enough so that in equilibrium, leisure increases and current consumption falls. Identify and explain how the following change (i.e., rise, fall, no change, or ambiguous) a. Current output b. Current investment c. Current employment d. Current real wage e. The real interest rate

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

With reference to the business cycle, explain how economic recovery (and the resulting "boom") will eventually lead ro recession and "bust".
1. Describe how each of the following changes would affect real GDP (Y) in the short run: a. Firms become more pessimistic in their expectations of the future marginal revenue products of capital. b. The Fed lowers the real interest rate. c. Households' wealth increases.
When stagflation began to appear in the US economy in the late 1960s, economists and policymakers were perplexed because they had never seen __________ and __________ at the same time. a. high inflation rates; high interest rates b. a stagnant economy; high unemployment rates c. high unemployment rates; high growth rates d. high inflation rates; high unemployment rates
What is most likely to occur during the expansionary phase of the business cycle? A.) Real GDP increases and unemployment decreases B.) Inflation increases and unemployment increases C.) Real GDP decreases and inflations increases D.) Real GDP decreases and unemployment decreases
Elaborate discussion of Classical Model of Employment, Output, Wages and Prices
What is likely to be true at the peak of the business cycle? A. Real GDP, unemployment, and inflation are all likely to increase. B. Real GDP is increasing, unemployment is decreasing, and inflation is increasing. C. Real GDP, unemployment, and inflation are all likely to decrease. D. Real GDP is decreasing, unemployment is increasing, and inflation is steady or decreasing.
The data also indicate that wages tend to be downward rigid. This means that a. wage declines are infrequent b. wage increases are infrequent c. wages adjust slowly in both directions d. people are rigid when reporting wages
According to classical macroeconomic theory, a. the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process. b. for any given level of output, the interest rate adjusts to balance the supply of, and demand for, money. c. output is determined by the supplies of capital and labor and the available production technology. d. All of the above are correct.
options for blanks (please only answers that are right); 1. 0.6 doughnuts, 1.67 doughnuts, $6.00, $10.00 2. decreases, increases, remains the same, 3. decreases, increases, remains the same, 4. affects, does not affect 5. affects, does not affect
Please answer question 1
1. Explain the difference between Keynesian economics and Classical economics by mentioning the complete name of the economist who develops the theory/model. 2. Describe each of the components of the GNP equation and which one you feel can distort GNP the most.
real business cycle theory suggest that _______ not important in explaining short-term fluctuations around actual output a. aggregate supply is b. potential output is c. real variables are d. aggregate demand is