The following four equations relate to an economy. Use them to answer the questions that follow. Product Market: y= c(y-c) + i(r) + g Money Market: ṁ= i(r) + k(y) Production function: y= y(N; Ǩ) Labour Market: p,f(N)= P­­e * g(N)= P(p) * g(N) Draw the classical model in the price income (P-Y) space graph and explain what happens when the nominal money supply rises. Assuming a complete and correct adjustment (P­­e to P), derive the effect of fiscal policy increase in the government expenditure and explain the differences of the fiscal policy when p=0 and when P=1

You're a staffer working for Senator Joe King, a diehard opponent of minimum wages. The Senator wants to persuade other members of Congress to oppose a new proposal to raise the minimum wage. He needs you to calculate the cost to society of a $17 minimum wage according to the neoclassical model of labor markets. Suppose the market for labor has the equations LD= 172 - 4W LS= -30 + 23W where W is the wage and L is the number of workers. Give your answer in dollars, rounded to the nearest integer.

The labor force participation rate fell during the pandemic.  This would  shift the LRAS curve right shift the SRAS curve up/left shift the SRAS curve down/right shift the LRAS curve left   As prices rise while wages are sticky, firms' profit per unit rises.  This is an explanation for why rising prices shift SRAS curve to the left the SRAS curve is upward sloping the AD curve is downward sloping rising prices shift SRAS curve to the right       When the economy is at a short-run equilibrium above full employment, what is happening in the labor market? unemployment is high and there will be downward pressure on wages unemployment is low and there will be downward pressure on wages unemployment is high and there will be upward pressure on wages unemployment is low and there will be upward pressure on wages

Given a closed economy where there is no public sector. Production in the economy can be described with the following production function: Y = F (K, AL) = Kα(AL)1−α  where Y is the productive capacity of the economy, K is the capital stock, L is the labor force, and A is knowledge. Think of AL as a single factor of production where knowledge and the amount of labor are multiplied together. Let's call the multiplier (ie AL) the efficiency of labor. Given that A = 1.5 and saving is a fixed rate of the production, or s = 33%. The capital stock shrinks by 3% per year, while the population grows is nobody Finally, α = 0.4. Answer the following questions based on the above criteria. (a) Show mathematically that the marginal productivity of labor and capital is positive but diminishing. Explain in words and with a picture what the term positive but diminishing marginal productivity means. (b) Show mathematically that saving and investment are equivalent in a closed economy (c) Show…

Consider the following short-run, closed economy model of the economy. Goods Market C = 50 + 0.5(Y – T) I = 150 – 10r ; NX = -200 G = 150 ; T = 100   Money Market M = 20,000 P = 100 L(Y, r) = Y – 50r   1. Find the equilibrium values of r and y. *** This has been answered*** Goods Market = 600 - 20r Money Market = 200 + 50r equilibrium value of r = 5.71; Y = 485.8 2. Assume the natural rate of output is Y̅ = 210, individuals do not hold currency (cr = 0), and the reserve requirement is 10% (rr = 0.1). If the Fed desires to return the economy to its natural level, what should they do with reserves (R) and the money supply (M)?  What is the new equilibrium real interest rate?

Consider the following short-run, closed economy model of the economy. Goods Market C = 50 + 0.5(Y – T) I = 150 – 10r ; NX = -200 G = 150 ; T = 100   Money Market M = 20,000 P = 100 L(Y, r) = Y – 50r   1. Find the equilibrium values of r and y. *** This has been answered*** Goods Market = 600 - 20r Money Market = 200 + 50r equilibrium value of r = 5.71; Y = 485.8   Policymakers plan to balance the budget by decreasing G. What is the size of the Keynesian-Cross government spending multiplier and the horizontal shift of the IS curve? What are the resulting IS-LM equilibrium values of r and Y after the shift? What is the size of the effective (actual) government spending multiplier? Why is it smaller?

Consider the Ramsey Model of the macroeconomy. Explain using a phase diagram how an economy starting from any point in phase space reaches the unique steady state solution. Now suppose once the steady state is reached that there is an unexpected permanent fall in government spending. Explain, using a phase diagram, how the c = 0 and k = 0 curves are affected and how the economy moves to a new steady state. How are interest rates affected during the transition to the new steady state? Explain your answer.

In the (neo) classical theory, prices are “market-based”(firms take prices) and “demand-determined”. Discuss.