econ162b_41108 - o Desired output Straight line because of...

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11/04/2008 10:06:00 Deriving the Demand Curve for Labor: Profit- maximization in labor markets Firms maximize profits by hiring a quantity of labor where W=MP 2 Marginal product of labor= The additional output produced by hiring one more  unit of labor. MP 2=  X= slope of Production Function Supply Curve for Labor Households supply a quantity of labor to maximize utility. Income- Leisure Trade-off Product Markets Aggregate Demand/Aggregate supply analysis Aggregate demand shows the quantity of output that households and other  spenders of the economy desire to purchase at different price levels. o Desired spending Aggregate Supply- The quantity of output the firms and workers are willing  and able to produce at different price levels.
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Unformatted text preview: o Desired output Straight line because of assumptions: Assume markets always clear Assume no money illusion o Deriving Aggregate Supply When the price level doubles, the real wages are cut in half. o Deriving Aggregate Demand Monetary policy Equation of exchange: idea that enough money in circulation.? Equation of Exchange: Idea that M x B= P x Y M= money supply Money in circulation at a given point in time B= Velocity of money (turn over rate) o How many times it is spent in a given year. o Money needs to turn over enough times to purchase o P= Price Level o Y= Nominal GDP o MV= PY o P= MV/Y 11/04/2008 10:06:00 11/04/2008 10:06:00...
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econ162b_41108 - o Desired output Straight line because of...

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