discussionsectionhandout6fall2007

discussionsectionhandout6fall2007 - Econ 102: Fall 2007...

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Econ 102: Fall 2007 Discussion Section Handout #6 1 Aggregate Production Function 1. Suppose the labor market is initially in equilibrium and that you are using a classical model. Holding everything else constant, Suppose that (a) U.S. government decreases the income tax. What will result in our aggregate production level? (b) In order to fight back terrorists, the congress has decided to increase the number of soldiers by 5%. What will result in our aggregate production level? (c) There is a severe capital outflow from the USA to emerging markets, What will result in our aggregate production level? 2. The demand and the supply of labor in the country of Myland are: 10 S L w = - 70 3 D L w = - The aggregate production function is: 1500 Real GDP (in billions) 300 5 Quantity of Labor = - + What is the real GDP, wage rate, and labor productivity corresponding to the full employment (potential output)?
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Econ 102: Fall 2007 Discussion Section Handout #6 2 Quantity Theory of Money 3. In 2005 the aggregate price level in Tropicia is 1, and real GDP is $5000 Furthermore,
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discussionsectionhandout6fall2007 - Econ 102: Fall 2007...

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