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optionalhomework6spring2007

optionalhomework6spring2007 - Economics 102 Homework#6...

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Economics 102 Homework #6 Spring 2007 Directions: The homework will NOT be collected. Although we do not that questions in this extra homework will be on the exam, we strongly encourage you to solve and understand all the questions here. Good luck! 1. Consider the following simple Keynesian model: Y = C + S + T C = 100 + 0.7(Y-T) I = 200 G = 240 T = 0 The aggregate production function of the economy is Y = 2*(L)^0.5. The functions of demand for and supply of labor are: Demand: (w/P) = 3000000-L Supply: (w/P) = 2L (a) Calculate the equilibrium output in this economy according to the Keynesian model. (b) What is the equilibrium level of employment in this Keynesian equilibrium? Is that different from the full employment level that is found by the intersection of the labor demand and supply functions? (c) Assume the government wants to move the economy to the full employment level of output by changing G. What does G have to equal to reach the full employment level of output?
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