Question: Now consider a TFP shock that is permanent. For example, suppose the discovery and application of a new technology makes firms more productive. Consider the

Now consider a TFP shock that is permanent. For example, suppose the discovery and application of a new technology makes firms more productive. Consider the labor market block of a standard DSGE model with no sticky prices or wages.
(a) What happens to the labor demand schedule?
(b) What happens to the labor supply schedule?
(c) Why is the net effect on employment ambiguous? What happens to the real wage?

Step by Step Solution

★★★★★

3.29 Rating (170 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a A permanent positive TFP shock increases the marginal pro... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

780-B-E-M-E (7255).docx

120 KBs Word File

Students Have Also Explored These Related Economics Questions!

Suppose the economy is hit with a temporary positive TFP shock. For example, suppose weather conditions are temporarily very favorable for agriculture. (a) Analyze the effect of the shock in the...

Suppose there is a large temporary decline in government purchases in the economy, financed by an unspecified decline in future lump sum taxes. (a) Analyze the effect of the shock in the labor market...

In many other countries, especially in Europe, there is a value-added tax (sometimes called a VAT). Firms are charged taxes based on the value-added they produce. That is, they are allowed to deduct...

Advanced Fuels Corporation (AFC) was founded five years ago by Dr. Zachary Aplin, who left his faculty position at Texas A&M to work full me developing a process to convert waste products into fuel....

please try and simply the work I will appreciate thankyou a) Show that, with flexible prices, the natural level of output can be written as IT = ry,9 T= - o+ wy Briefly explain how and why a...

A permanent TFP shock: Now consider a TFP shock that is permanent. For example, suppose the discovery and application of a new technology makes firms more productive. Consider the labor market block...

Consider an economy like the one described in the numerical example discussed on Weeks 7 and 8. The set up of this economy is briefly summarized in the two paragraphs below. You dont have to read...

5 Attraction to Groups Learning Objectives What We Will Be Investigating What makes a group work most efficiently? What techniques are available to make group members feel more as if they are part of...

assay of what you may think is important and what can be interesting from this reading. Does technology make your life easier? 1.1 Introduction: the "Easier-life Thesis" It is commonly repeated that...

Mrs. Lee does not belong to any RPP or DPSP at her place of employment. She had earned income in 2019 of $50,000 and Unused RRSP Deduction Room from 2019 of $2,000. She had unclaimed RRSP...

Discuss the likely effects of the following: a. Rent ceilings on the market for apartments b. Floors under wheat prices on the market for wheat Use supply-demand diagrams to show what may happen in...

(Appendix 5A) Activity-Based Management, Nonvalue-Added Costs Danna Martin, president of Mays Electronics, was concerned about the end-of-the-year marketing report that she had just received....

Explain to a manager what the financial ef iciency ratios could tell her about the business. [6]

1. Suppose the average annual malpractice cost is $40,000 for reckless doctors and $2,000 for careful doctors. If half of an insurance company s insured doctors are reckless, the company will earn...

1. In the market for insurance, the moral-hazard problem is that ________encourages ________. 2. While shopping for office equipment, an office manager sees a display of fire extinguishers. After...

1. Philadelphia has relatively high prices for car insurance because ________cause ________and ________causes ________. 2. In the market for crop insurance________, -risk farmers buy insurance in...

For many years businesses have struggled with the rising cost of health care. But recently, the increases have slowed due to less inflation in health care prices and employees paying for a larger...

Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $50,000. In return, for the next year the firm would have access to...

Answer all questions with explanation The Appliance Parts Company manufactures small motors used in various household appliancees. Extensive reliability testing has determined that the failure...