Question: Consider an economy with an aggregate production function Y=alpha K+beta L where alpha and beta are positive constants K is capital L is labour and

Consider an economy with an aggregate production function Y=alpha K+beta L where alpha and beta are positive constants K is capital L is labour and Y is output.K is fixed in the short run.Perfectly competitive producers take the nominal wage rate W and the price level P as given and employ labour so as to maximize profit.This generates the labour demand schedule. The labour supply schedule is L^(S)=-gamma+delta W/P where gamma and delta are positive constants. Producers and workers have perfect information about P and W . The labour market will clear if and only.if (a) beta>gamma/ delta (b) betadelta/ gamma

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