soln5 - Problem Set #5 Solutions Chapter 10, Numerical...

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Problem Set #5 Solutions Chapter 10, Numerical Problem #1: The following information is given for the whole problem: ) 5 . 0 100 ( 2 N N A Y - = ) 100 ( N A MPN - = a.) Labor demand is determined from the marginal product of labor schedule: A w ND - = 100 . For this part of the problem, labor supply is given by: w NS 1 . 0 45 + = . Equating labor supply and labor demand, we find that: ) 1 1 . 0 ( 55 A w + = . For 1 = A , we may compute: 0 . 3750 ) 5 . 0 100 ( 50 1 . 0 45 50 2 = - = = + = = = N N A Y w NS N w For 1 . 1 = A , we may compute: 4 . 3772 ) 5 . 0 100 ( 45 . 50 1 . 0 45 5 . 54 2 = - = = + = = = N N A Y w NS N w b.) We now redo part a with labor supply given by: w NS 8 . 0 10 + =
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Equating labor supply and labor demand, we find that: ) 1 8 . 0 ( 90 A w + = . For 1 = A : 0 . 3750 50 50 = = = Y N w For 1 . 1 = A : 1 . 3854 13 . 52 66 . 52 = = = Y N w c.) When NS is more sensitive to the real wage rate (as in part b) an increase in A results in a smaller increase in the real wage rate. Therefore, the RBC model fits
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soln5 - Problem Set #5 Solutions Chapter 10, Numerical...

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