PS5(1) - ECON 352x Macroeconomics for Business Problem set 5(Due date NAME 1 Suppose that the aggregate production function takes the form A(100N 0.5N 2

# PS5(1) - ECON 352x Macroeconomics for Business Problem set...

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ECON 352x - Macroeconomics for Business Problem set 5 ( Due date: April 21, 2015) NAME 1. Suppose that the aggregate production function takes the formA(100N-0.5N2),whereYis output,Ais productivity, andNis total hours worked.The marginalproduct of labor associated with this production function isMPN=A(100-N).InitiallyA= 1.0 but a positive productivity shock raisesAto 1.1(a) Assuming that the supply of labor isNs= 45 + 0.1w, wherewis the wage rate,solve forEquilibrium level of output before the productivity shock:Hours worked before the productivity shock:Wage rate before the productivity shock:Equilibrium level of output after the productivity shock:Hours worked after the productivity shock:Wage rate after the productivity shock:(b) Assuming now that the supply of labor isNs= 10 + 0.8w, solve forEquilibrium level of output before the productivity shock:Hours worked before the productivity shock:Wage rate before the productivity shock:Equilibrium level of output after the productivity shock:Hours worked after the productivity shock:Wage rate after the productivity shock: 1
2. An economy has the followingADandAScurves:ADcurve:Y= 300 + 30MP,AScurve:Y=¯Y+ 10(P-Pe).Here,¯Y= 500 andM= 400.HINT: To answer the first two questions you need to solve for a quadratic equationinPwhich has two solutions.You discard the negative solution and use only thepositive solution. More specifically, if you have an equationax2+bx+c= 0 wherex

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