Econ 154a Problem Set 9 Solution

# Econ 154a Problem Set 9 Solution - Problem Set 9 -...

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Problem Set 9 - Solutions Problem 1 1. Exogenous Labor Supply: A - pure supply shock Af, M, Mf, G , Gf - pure demand shocks Endogenous Labor Supply (N now depends on Af, G , Gf) A- pure supply shock Af, G, Gf - both demand and supply shocks M, Mf - pure demand shocks E ciency Wage - same as with Exogenous Labor supply because we have that: Y = AF ( K,N EW ( A,K )) 2. Variable Data M A f Consumption Procyclical Procyclical Procyclical(?) Investment Procyclical Procyclical Procyclical Employment Procyclical Procyclical Procyclical Real interest rate Acyclical Countercyclical Procyclical Av. Labor Productivity Procyclical Countercyclical Countercyclical Variable M f G G f Consumption Procyclical Countercyclical Procyclical Investment Procyclical Procyclical Countercyclical Employment Procyclical Procyclical Procyclical Real interest rate Countercyclical Procyclical Procyclical Av. Labor Productivity Countercyclical Countercyclical Countercyclical 3. In the Real Business Cycle Model (the two period model with endogenous labor supply) the impact of a shock will depend on the assumption about prices. If we consider f exible prices, we have that pure demand shocks, i.e., M and Mf, do not a f ect the real variables such as consumption and output. However, since we have endogenous labor supply any change in G,Gf,Af, and A will have an impact on the real variables even with f exible prices. Note that this happens 1

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## Econ 154a Problem Set 9 Solution - Problem Set 9 -...

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