Question: pose that there is an increase in t. Consider the basic Neoclassical Model. Sup- (a) Provide an economic intuition for what an increase in

pose that there is an increase in t. Consider the basic Neoclassical Model. Sup- (a) Provide an economic intuition for what an increase in Ot could represent. (b) Graphically analyze the effects of this change and describe how each endogenous variable changes. (c) Now, draw out another version of the model in which labour demand is relatively elastic (i.e. sensitive to the real wage). (d) Provide an economic intuition for this scenario: what determines how elastic labour de- mand is with respect to the real wage. (e) Comment on how the magnitudes of the changes in Yt, rt, wt, and Nt depend on how sensi- tive labour demand is to the real wage.

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