Consider the following model of a closed macroeconomy. The Labour Market Y=60N-N/2 N=60-W/P N = (0.5)W/P...

 

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Consider the following model of a closed macroeconomy. The Labour Market Y=60N-N/2 N=60-W/P N = (0.5)W/P N = N = N The Goods Market C=140+0.75Y I=20+0.2Y - 200i G=150 Y=Y-T T = Y/3 Y=C+I+G The Money Market L=100+0.2Y - 200i M/P=300/P L=M/P (1) Production function (2) Labour demand (3) (4) (5) (6) (7) (8) Labour supply Labour market equilibrium Consumption function Investment function Government expenditure Disposable income (9) Tax function (10) Goods market equilibrium (11) Money demand (12) Money supply (13) Money market equilibrium a) Assume that the price level P is fixed at P=1. Solve for the equilibrium levels of Y and i, using the IS and LM equations associated with the goods and money markets. (10 marks) b) Assume, alternatively, that all prices, including wages, are flexible (so this becomes a Classical model). Solve for the equilibrium values of Y", i, and P". (10 marks) Consider the following model of a closed macroeconomy. The Labour Market Y=60N-N/2 N=60-W/P N = (0.5)W/P N = N = N The Goods Market C=140+0.75Y I=20+0.2Y - 200i G=150 Y=Y-T T = Y/3 Y=C+I+G The Money Market L=100+0.2Y - 200i M/P=300/P L=M/P (1) Production function (2) Labour demand (3) (4) (5) (6) (7) (8) Labour supply Labour market equilibrium Consumption function Investment function Government expenditure Disposable income (9) Tax function (10) Goods market equilibrium (11) Money demand (12) Money supply (13) Money market equilibrium a) Assume that the price level P is fixed at P=1. Solve for the equilibrium levels of Y and i, using the IS and LM equations associated with the goods and money markets. (10 marks) b) Assume, alternatively, that all prices, including wages, are flexible (so this becomes a Classical model). Solve for the equilibrium values of Y", i, and P". (10 marks)