HW11_SOL - Economics 314 Suggested Solutions to HW 11...

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Unformatted text preview: Economics 314 Suggested Solutions to HW 11 December 9, 2007 1 [1, page 412, 1 and 2] 1. Suppose that the quantity of labor supplied be L s at a given real wage ( w/P ) is greater than the quantity of labor demanded L d = L . The usual assumption about markets is that the nominal wage w would decline in this situation. That is, the eager suppliers of labor would compete for jobs by bidding down w . However, this assumption is ruled out by assumption in the Keynesian model at least in the short run. The excess of the quantity of labor supplied (at the given real wage ( w/P ) over L is called involuntary unemployment. See Figure 16.3 on page 406 in Barro’s book. 2. We know that the nominal quantity of money, M equals the nomi- nal quantity demanded P.L ( Y,i ) implies, M = P.L ( Y,i ) . Now if we broaden the concept of M to the monetary base, which is the mone- tary aggregate affected directly by the Fed’s open-market operations. Through these operations, the Fed can control the quantity of monetary base on a day-by-day basis....
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This homework help was uploaded on 12/13/2007 for the course ECON 3140 taught by Professor Mbiekop during the Fall '07 term at Cornell.

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HW11_SOL - Economics 314 Suggested Solutions to HW 11...

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