We have not talked seriously about this in the class, but I am sure you can...

 

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We have not talked seriously about this in the class, but I am sure you can do it. It also adds an additional insight into our labor market graph (the one you are probably sick and tried of). Assume no natural unemployment of any sort. Nominal wage is the money you receive for working for a firm. Suppose you receive W = $5,000 per month of nominal wage. But the thing is this $5,000 is nominal (unimportant), what you really care about is the real wage. Who cares that you are getting $5,000. The real question is how much stuff you can buy with that money. Suppose the price level is 100. Then your real wage is W/P = $5,000/100 = 50 units of goods and services. If there are 1,000 workers like you in the country, then the total real labor income will be 50 x 1,000 = 50,000. Therefore, of all the GDP produced, 50,000 will accrue to workers and the rest to other production factors. Let's call all the other production factors "capital" (that includes capital, land, minerals, entrepreneur, and everything else I forgot yo include). Since the above graph pertains to MACRO- economy, it includes everything (labor and capital). Now, use the above graph to find the following. Total real labor income = Total capital income = To answer this, think about the definition of marginal product of labor and assume that demand for labor in the graph is the MPL for the whole country. I was wrong! I forgot to mention that 5 percent of labor force in this country is frictionally unemployed. How would my forgetfulness affect your calculation of the real labor income? Total real labor income incorporating the 5 percent frictional unemployment = 9.50 9.00 8.50 8.00 7.50 7.00 6.50 6.00 5.50 5.00 2.00 1.50 1.00 0.50 0.00 Labor (L) 000'SOt 104,500 000'Pot 103,500 000'EoT 102,500 000'zot 00s'TOT 000'tot 100,500 000'00t 99,500 000'66 98,500 000'86 00s'L6 000'L6 00s'96 000'96 00s's6 000's6 94,500 000'v6 93,500 000'E6 00s'z6 000'z6 91,500 000't6 Real Wage (W/P) We have not talked seriously about this in the class, but I am sure you can do it. It also adds an additional insight into our labor market graph (the one you are probably sick and tried of). Assume no natural unemployment of any sort. Nominal wage is the money you receive for working for a firm. Suppose you receive W = $5,000 per month of nominal wage. But the thing is this $5,000 is nominal (unimportant), what you really care about is the real wage. Who cares that you are getting $5,000. The real question is how much stuff you can buy with that money. Suppose the price level is 100. Then your real wage is W/P = $5,000/100 = 50 units of goods and services. If there are 1,000 workers like you in the country, then the total real labor income will be 50 x 1,000 = 50,000. Therefore, of all the GDP produced, 50,000 will accrue to workers and the rest to other production factors. Let's call all the other production factors "capital" (that includes capital, land, minerals, entrepreneur, and everything else I forgot yo include). Since the above graph pertains to MACRO- economy, it includes everything (labor and capital). Now, use the above graph to find the following. Total real labor income = Total capital income = To answer this, think about the definition of marginal product of labor and assume that demand for labor in the graph is the MPL for the whole country. I was wrong! I forgot to mention that 5 percent of labor force in this country is frictionally unemployed. How would my forgetfulness affect your calculation of the real labor income? Total real labor income incorporating the 5 percent frictional unemployment = 9.50 9.00 8.50 8.00 7.50 7.00 6.50 6.00 5.50 5.00 2.00 1.50 1.00 0.50 0.00 Labor (L) 000'SOt 104,500 000'Pot 103,500 000'EoT 102,500 000'zot 00s'TOT 000'tot 100,500 000'00t 99,500 000'66 98,500 000'86 00s'L6 000'L6 00s'96 000'96 00s's6 000's6 94,500 000'v6 93,500 000'E6 00s'z6 000'z6 91,500 000't6 Real Wage (W/P)

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Real Wage defines the workers conditions Both Workers and Firms care about the real wage not the nom... View the full answer