Question: 4. a. In our basic model, we assumed that the labor supply curve was vertical. Using solid microeconomic reasoning, explain why an increase in

4. a. In our basic model, we assumed that the labor supply curve was vertical. Using solid microeconomic reasoning, explain why an increase in the real wage would have no effect on aggregate labor supply. b. Is there empirical evidence to suggest that a vertical labor supply curve is plausible? Explain. c. Suppose the price of goods (P) rises. What happens to the equilibrium real wage, nominal wage, and quantity of employment? Explain why. What happens to equilibrium output? Explain why.

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