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E304exam2_essay_A_key - ECON 304.013 Exam 2 Part 2 Form A...

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ECON 304.013 Exam 2 Part 2 Form A SHORT ANSWER – Carefully answer the question below. Put your answers in this test packet. This section is worth 25 points. BE SURE TO SHOW ANY CALCULATIONS IN DETAIL IN ORDER TO GET FULL CREDIT!!!! 1. The production function in a closed economy is Y = A(5N - 0.0025N 2 ) where A is productivity. With this production function, the marginal product of labor is MPN = 5A - 0.005*A*N Suppose that A=2. The labor supply curve is N S = 55 + 10(1 - t)w where N S is the amount of labor supplied, w is the real wage, and t = 0.5 is the tax rate on wage income. Desired consumption and investment are C d = 300 + 0.8(Y - T) – 200r I d = 258.5 - 250r Taxes and government purchases are T = 20 + 0.5Y G = 50 Money demand is M d /P = 0.5Y - 250(r + π e ) The expected rate of inflation, π e , is 0.02 and the nominal money supply M is 9150. a. Solve for the real wage and the level of employment, N that clears the labor market. Then draw a graph of the labor market. Show labor supply, labor demand and equilibrium. Label the axes, the curves and
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