PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Question
Chapter 8, Problem 8.6CC
To determine
Diagrammatic representation of the changes in labor productivity, labor supply, and real wages during the past decades.
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Suppose that the demand curve of the labor
market is p=105-q. where p is the price of
labor (wage) and q is the number of workers
employed. There are 100 people who are
willing to work for any wage. In this situation,
the unemployment rate (UR) has been
recorded at 5%. This means that the current
wages are at a level where the UR is 5%. Now,
suppose the government sets a policy goal of
raising the current wage rate by 20%. We can
expect this policy to change the UR from 5%
to (1)_-.
%.
Assume that the economy is in a recession and demand for labor is falling. Assume that wages are sticky.
Draw a supply and demand graph that represents the labor market. Draw a graph that depicts what has happened to our demand and supply curves in the labor market, including our new equilibrium price and quantity of labor. Will the market experience an increase or a decrease in unemployment?
Make sure you clearly label your graph, all of its components, and any curve shifts are clearly marked with the beginning and ending curves (you can use 0 and 1 or 1 and 2 to designate the first and the second curves).
Q1. Suppose the labor market is initially at its equilibrium, i.e., labor supplied equals labor demanded. Now suppose the government raises the retirement age from 65 to 67. Explain and show graphically how the increase of the retirement age affects the labor market.
Draw the full graph and provide a detailed explanation of the effect. Label the axes/curves, explain why either the aggregate labor demand curve or the aggregate labor supply curve shifts, and describe the economic mechanism that moves the economy from the old to the new equilibrium.
Chapter 8 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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- Consider Special City that manufactures light fixtures that are sold around the world. Draw their base case Labor Market graph. Now assume there is a national shortage of glass that Special City manufacturers use to create their light fixtures. Show what would be the effect on your Labor Market graph. Lastly, assume the manufacturers change their manufacturing process to use less glass but inadvertently create a very noticeable increase in the smog levels that makes it hard to breathe. Show another variation to reflect the change in your labor market graph, be sure to indicate the effects of the changes on for each of these market changes or combine the graphs, just be sure the changes and new equilibria are legible:arrow_forwardEconomics Modify the Lewis model and assume that there is a strictly positive marginal product of labor in the traditional sector. Use figures with production functions in the traditional and the modern sectors to show what the equilibrium is when no one wants to move away from agriculture. What assumptions do you have to make about production functions to arrive at the conclusion that fewer people will end up in agriculture? Use the same starting point as in the above question. Derive the demand for labor in the traditional and in the modern sectors. Show graphically what the characteristics of the equilibrium would look like when no one wants to change sectors.arrow_forwardif there is unemployment in the labor market, what would you recommend as a set of policies or programs to address such problems. Illustrate your recommendations geometrically (i.e., graphically).arrow_forward
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