Macroeconomics (Fourth Edition)
4th Edition
ISBN: 9780393603767
Author: Charles I. Jones
Publisher: W. W. Norton & Company
expand_more
expand_more
format_list_bulleted
Question
Chapter 15, Problem 6E
(a)
To determine
The impact of reducing labor income tax on labor
(b)
To determine
The impact of reducing labor income tax on the labor supply schedule.
(c)
To determine
The impact of reducing labor income tax on real wage and employment.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Which of the following is not true about real business cycle macroeconomics:
(a) is based on econometric and statistical modeling.
(b) describes how productivity shocks affect the business cycle
(c) determines that neither fiscal nor monetary policy is very important for macroeconomic performance
(d) requires dynamic general equilibrium modeling
The labor market model (II): Now we add some parameters to the labor market model: labor supply: Ls = × w + labor demand: Ld = - w The parameters in this setup are , , and . (Notice that parameters are denoted with an overbar, a convention we will maintain throughout the book.) The parameter represents the number of hours workers would supply to the market even if the wage were zero; it therefore reflects the inherent amount of time people like to work. The parameter , in contrast, reflects the amount of labor the firm would like to hire if the wage were zero. It might be thought of as some inherent capacity of the firm (perhaps because the firm owns a given amount of land and capital that cannot be altered). (a) What is the economic interpretation of ? (b) What are the endogenous variables in this model? (c) Solve for the equilibrium of the labor market. That is, solve for the endogenous variables as a function of the parameters of…
Macroeconomic model
Y = GDP
C = private consumption
I = investment
G = public consumption and G is constant
r. = interest rates
m = supply of money
C,h and L are differential functions
a) how many degrees of freedom are there in this equation
b) differentiate the Equation
c) Put dM = 0 and find dY/dr and dI/dr
Chapter 15 Solutions
Macroeconomics (Fourth Edition)
Knowledge Booster
Similar questions
- An economy has an unemployment rate of 11% and real GDP grows by 2.5% annually. A treasury official says next year's expected growth rate of 4% is ecpected to bring down the enemployment rate to 8% within one year. However, an economists disagrees as it is non consistent with macroeconomic research. -who is correct? the treasury official or the economist and why?arrow_forwardIntermediate macroeconomics: Using examples and clearly labeled graphs where applicable answer the following questions clearly and detailed. What argument, based on macroeconomic theory, might a government use to justify shutting down a newspaper critical of its policies? If you were asked to provide a counterargument, what would it be? Explain.arrow_forwardthe August unemployment figures for Australia were surprisingly better than predicted (did not continue to increase) given the collapse that occurred in the economy due to COVID closures. (a) Use the static AD-AS model to explain the short run impact of the COVID closures on the economy and discuss the implications this has for unemployment. b) Comment on the limitations of the static AD-AS model in analysing the situation under COVID.arrow_forward
- For each of the following Aggregate Supply Models, show that Y = Ý +a (P- P), stating clearly all the relevant assumptions in each case. (i) (11) The Sticky-wage Model The Imperfect-information Model (111) The Sticky-price Model.arrow_forwardASAP Regardless of many assumptions, an equilibrium business-cycle model can go a long way in matching actual economic fluctuations for many macroeconomic variables. Please write down examples and explain its possible reasonings?arrow_forwardUsing the information in the pictures below, Answer the following questions. The macroeconomic forecasts carried out by different entities are of upmost importance for the whole society and, of course, for the companies that operate in that economy. select two updated macroeconomic charts of some of the entities that monitor the economy and make forecasts. The objective is to compare different future forecasts of the entities to have a critical and well-formed view of the macroeconomic future in the USA. Based on the charts consulted, comment what is expected from the American economy in the next years in general terms. Are there differences in the forecasts? How do you think the state will act in the future based on the chart variables that inform us about its behavior? What will the behavior of families and companies be like?arrow_forward
- * 5. The labor market model (I): Suppose the following equations characterize supply and demand in the labor market model: labor supply: L³ = 2 × w + 30 labor demand: Lª = 60 – w Equilibrium occurs at an employment level L* and a wage w*, so that the labor market clears. That is, supply is equal to demand: L'= Lª (a) What are the endogenous variables in the labor market model? (b) Solve for the equilibrium values of these endogenous variables.arrow_forwardIn our Aggregate Demand and Supply model, a decrease in Aggregate Demand would cause which of the following in the short run? Group of answer choices a) neither deflation nor inflation b) deflation and recession c) inflation and economic growth d) inflation and recession e) deflation and economic growtharrow_forwardWe can analyze the macroeconomic effects of Hurricane Katrina using the aggregate supply (AS) and aggregate demand (AD) diagram. The horizontal axis measures real GDP, a measure of the nation’s output that removes the effects of inflation. The vertical axis measures the price level (the average level of output prices). Consider Katrina’s effect of “cost shocks” – unexpected changes in the prices of important inputs (assume LRAS is unchanged). For example, Katrina unexpectedly choked off oil, natural gas, and refined gasoline supplies from the Gulf region, placing upward pressure on energy costs. The hurricane also shut down factories and businesses, reducing the nation’s productive capacity. Therefore, the effect of the higher energy prices and reduced productive capacity is to shift the __________ curve(s). Consider how the government’s fiscal policy response affects the economy. Recall that both individual consumers’ purchases and government purchases are included in aggregate…arrow_forward
- The Canadian economy suffered two major shocks in 2008, leading to the severe recession of 2008–2009. One shock was related to oil prices; the other was the slump in both consumer and business confidence. This question analyzes the effect of these two shocks on GDP using the AD–AS model. Draw typical aggregate demand and short-run aggregate supply curves. Label the horizontal axis “Real GDP” and the vertical axis “Aggregate price level.” Label the equilibrium point E1, the equilibrium quantity Y1, and equilibrium price P1. Would an increase in oil prices cause a demand shock or a supply shock? Redraw the diagram from part (a) to illustrate the effect of this shock by shifting the appropriate curve. The New Housing Price Index, published by Statistics Canada, calculates that Canada’s home prices fell by an average of 3% in the 12 months between April 2008 and April 2009. Business fixed capital formation fell by 19% during the same period. Would the fall in home prices and business…arrow_forwardquestion 3 Consider the AS-AD and three-equations models of a closed economy discussed in the course. (a). Write down the expressions for the AS and AD curves and interpret the expressions: what is the intuition behind the two curves? What must be true of the model parameters and variables in the long-run equilibrium, i.e. in the steady state? (b). Analyse the effects of an oil supply shock that causes a temporary increase in inflation, using the three-equation model. Assume that the shock lasts for one-period and then assumes the value 2%. Describe the mechanisms that bring the economy back to long-run equilibrium. What happens to aggregate demand? (c). Consider an economy that starts out in steady state when the central bank decides to make the inflation target more ambitious. Analyse the effects of a decrease in the inflation target from 7 to n". Explain the mechanisms behind the adjustment to the new steady state.arrow_forwardHow do expectations about future economic conditions influence the speed of adjustment? Are there any other factors that might affect the speed of adjustment?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you