discussionsectionhandout6answersfall2007

discussionsectionhandout6answersfall2007 - Econ 102 Fall...

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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? Labor supply curve shifts to the right, more labor in the Aggregate Production Function (holding other things the same), aggregate production level increases. (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? Labor supply curve shifts to the left, less labor in the Aggregate Production Function, aggregate production level decreases. (c) There is a severe capital outflow from the USA to emerging markets, What will result in our aggregate production level? The capital stock in US decreases, Aggregate Production Function shifts down 2. The demand and the supply of labor in the country of Myland are:
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discussionsectionhandout6answersfall2007 - Econ 102 Fall...

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