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ClassicalModelA.. - Part A Labor Market Potential GDP I...

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Ch 7: The Classical Model Part A: Labor Market & Potential GDP I. O ve rvie w In the  ne xt fe w c hapte rs , we  will talk abo 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 al variable s  – re al G DP, e m plo ym e nt, re al wag e  rate , re al inte re s t rate   – at full e m plo ym e nt. S o m e  e c o no m is ts  think that the  e c o no m y is  rare ly at full e m plo ym e nt.   O the rs  be lie ve  all fluc tuatio ns  are  at full e m plo ym e nt
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II. Pro duc tio n Po s s ibilitie s  Fro ntie r Yo u have  s e e n the  PPF fo r c o m binatio ns  o f g o o ds .  Le t’s  think o f it  us ing  a diffe re nt c o m binatio n o f thing s  we  c are  abo ut A ke y trade -o ff is  be twe e n wo rking  and le is ure .  We  as s um e  that  pe o ple  like  le is ure  and wo uld rathe r have  le is ure  than have  to  wo rk.   Ho we ve r, the y wo rk be c aus e  the y c an buy g o o ds . Think o f this  fo r an e c o no m y: Le is ure  tim e G o o ds , o r  G DP S ho w po ints  and  e xplain. Explain why c o nc ave
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III. Pro duc tio n Func tio n De finitio n:  Re late s  the  am o unt o f o utput that c an be  pro duc e d fo r  g ive n am o unts  o f labo r, c apital, te c hno lo g y, and o the r  inputs . We  c an g raph o utput ag ains t o ne  o f the  inputs , ho lding  the  o the r  inputs  and te c hno lo g y c o ns tant.  Labo r input G o o ds , o r  G DP Explain dim inis hing   re turns  in ag ric . c o nte xt
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IV. The  Labo r Marke t A. Labo r De m and The  q uantity o f labo r de m ande d is  the  num be r o f labo r ho urs  hire d by all the   firm s  in the  e c o no m y during  a g ive n pe rio d.
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