D.(4 points) Define the unemployment rate and the labor-force participation rate using thenotation above. ) L (4 points) Currently, the unemployment rate in the US is very close to what we mayconsider a long-run value, but the labor-force participation rate is considerably lowert-1than its long-run (average) value. Does this suggest Ois above its long-run (average)t-1t-1value, while E, and Uare both below their long-run values? 2. Consider a perfectly competitive economy in long-run equilibrium. Assume the aggregateproduction function isY = AKL1/3 2/3where Yrepresents output, Kand Lrepresent the inputs of capital and labor, and Ais totalfactor productivity (represents technology, broadly defined) . Assume labor supply is completely inelastic, and the labor input is constant over time. Assumethat in the equilibrium we observe, output and the capital stock both grow at the (continuously
compounded) average annual rate of 3 percent, the monetary aggregate M2 grows at a 4 percentrate, and the income velocity of M2 grows 1 percent. A.(9 points) What is the inflation rate in this economy? What are the implied growth ratesof real and nominal wages? Y L L
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- Summer '19