ClassicalModelA. - Ch 7 The Classical Model Part A Labor Market& Potential GDP I O ve rvie w In the ne xt fe w c ha pte rs we will talk a bo ut

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Unformatted text preview: Ch 7: The Classical Model Part A: Labor Market & Potential GDP I. O ve rvie w In the ne xt fe w c ha pte rs , we will talk a bo ut ho w the e c o no m y wo rks in the lo ng -run. We will us e the C las s ic al m o de l, whic h de te rm ine s the re a l va ria b le s – re al G DP, e m plo ym e nt, re al wag e ra te , re a l inte re s t ra te – a t full e m plo ym e nt. S o m e e c o no m is ts think tha t the e c o no m y is ra re ly a t full e m plo ym e nt. O the rs b e lie ve a ll fluc tua tio ns a re a t full e m plo ym e nt II. Pro duc tio n Po s s ib ilitie s Fro ntie r Yo u ha ve s e e n the PPF fo r c o m b ina tio ns o f g o o ds . Le t’s think o f it us ing a diffe re nt c o m b ina tio n o f thing s we c a re a b o ut A ke y tra de -o ff is b e twe e n wo rking a nd le is ure . We a s s um e tha t pe o ple like le is ure a nd wo uld ra the r ha ve le is ure tha n ha ve to wo rk. Ho we ve r, the y wo rk b e c a us e the y c a n b uy g o o ds . Think o f this fo r a n e c o no m y: Le is ure tim e G o o ds , o r G DP S ho w po ints a nd e xplain. Expla in why c o nc a ve III. Pro duc tio n Func tio n De finitio n: Re la te s the a m o unt o f o utput tha t c a n b e pro duc e d fo r g ive n a m o unts o f la b o r, c a pita l, te c hno lo g y, a nd o the r inputs . We c a n g ra ph o utput a g a ins t o ne o f the inputs , ho lding the o the r inputs a nd te c hno lo g y c o ns ta nt. La b o r input G o o ds , o r G DP Expla in dim inis hing re turns in a g ric . c o nte xt IV. The Lab o r Marke t A. La bo r De m and The q ua ntity o f la bo r de m a nde d is the num b e r o f lab o r ho urs hire d by a ll the firm s in the e c o no m y during a g ive n pe rio d....
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This note was uploaded on 04/07/2008 for the course GENERAL ED MMW 1,2; E taught by Professor Vandehey during the Spring '08 term at UCSD.

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ClassicalModelA. - Ch 7 The Classical Model Part A Labor Market& Potential GDP I O ve rvie w In the ne xt fe w c ha pte rs we will talk a bo ut

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