y= K∂(AN -ßNß) + CLy (a) Using calculus derive a formula for the aggregate labour demand...

y= K^∂(AN -ßN^ß) + CL^y

(a) Using calculus derive a formula for the aggregate labour demand (N D). Express aggregate labour demand as a function of the real wage w (and all other variables and parameters).

(b) The aggregate quantity of labor supplied is NS = 50 + (1 + s)w, where s is a wage subsidy paid by the government. Assume that s = 1, A = 100, B = 1/4, K = 1, β = 2: solve for the equilibrium real wage (w ∗ ), full-employment level (N∗ ). Assume that L = 10, C = 1 and γ = 2: find the full-employment level of output (Y ∗ ).

(c) The government’s goal is to achieve the employment level N∗∗ = 100: what is the value of the subsidy s ∗∗ that is needed in order to reach this target? What are the implied wage w ∗∗ and output Y ∗∗? Comment on your findings

Expert Solution

Rahul Sunny answered 1 year ago

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