Question: Consider the basic neoclassical model. Suppose that there is an increase in A t . Draw out two versions of the model, one in which

Consider the basic neoclassical model. Suppose that there is an increase in A_t. Draw out two versions of the model, one in which labor supply is relative elastic (i.e. sensitive to the real wage), and one in which labor supply is relatively inelastic (i.e. relatively insensitive to the real wage). Comment on how the magnitudes of the changes in Y_t, r_t, w_t, and N_tdepend on how sensitive labor supply is to the real wage.

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