This problem is to plot in 2 ways the neoclassical model when labour supply is elastic and another graph with inelasticlabour supply. And how the variables Yt (current output), rt (current interest rate), Wt (current nominal wage) and Nt current labour force are affected.

After that, the same analysis if there is an increase in the exogenous variable different other than wages (denoted by ?) at current period (t) in the labour market for cases with elastic and inelasticlabour supply.

Consider the basic neoclassical model. Suppose there is an increase in At. Draw 2 versions ofthe model, one in which labor supply is relatively elastic (sensitive to the real wage} and one with a relatively inelastic labor supply (relatively insensitive to the real wage}. How do the magnitudes of changes in .13, 1",; mmominal wage} and labor) depend on the sensitivity of labor supply to the real wage? Explain How does the analysis change if there is an increase in g; {where g; a variable that captures characteristics other than the real wage that affect labor supply, such as unemployment insurance, demographic changes or changes in preferences}