Let M = 36, k = 3, Ls = W/P, MPN = L-1/2 and Y = 2L1/2 . ...

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Let M = 36, k = 3, Ls = W/P, MPN = L-1/2 and Y = 2L1/2 . Calculate the labor demand curve, the aggregate demand curve, and the equilibrium values of the real wage, labor, output, and the price level.
 
  What will be an ideal response?

Question 2

Assume that the Federal Reserve replaces the money stock with the interest rate as an intermediate target. Then,
 
  a. the range for the target interest rate would be chosen to hit the inflation rate, unemployment rate, and growth rate of the economy.
  b. if the Treasury bill rate fell temporarily below the target range, the Open Market Desk would sell securities in the open market until the Treasury bill rate rose to the target range.
  c. if the Treasury bill rate rose above the target range, the Open Market Desk would purchase Treasury bills or other government securities.
  d. All of the above

[essyface1]

Answer to Question 1

Setting the real wage equal to the marginal product of labor allows you to solve for the labor demand curve as Ld = (W/P)-2 . Setting this equal to labor supply allows you to solve for the equilibrium value of labor and the real wage, L = 1 and W/P = 1 . Plugging these values into the production function gives you Y=2 . Plugging all of these values into the quantity theory equation allows you to solve for the equilibrium price level, P = 6.

Answer to Question 2

D

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TYSM

[31809pancho]

Excellent