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Questions › DSE › DSE 2004 › Q20
2 marks, −1Macroeconomics › AD-AS model › Classical aggregate supplyModerateabout 2 min

DSE 2004 Question 20: AD-AS model

Let w=W/Pw=W/Pw=W/P be the real wage rate, WWW the nominal wage and PPP the price level. Labour demand is D(w)=1−wD(w)=1-wD(w)=1−w and labour supply is S(w)=wS(w)=wS(w)=w. If NNN is the employment level, then f(N)f(N)f(N) is aggregate output. If the nominal wage is always such that the labour market clears, then the aggregate supply curve is given by the equation

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Let w=W/P be the real wage rate, W the nominal wage and P the price level. Labour demand is D(w)=1-w and labour supply is S(w)=w. If N is the employment level, then f(N) is aggregate output. If the nominal wage is always such that the labour market clears, then the aggregate supply curve is given by the equation (A) Y=Pf(N) (B) Y=f(N) (C) Y=Pf(1/2) (D) Y=f(1/2)

AD-AS model has come up 59 times in 7 exams since 2004.

What this question tests

This question is on Classical aggregate supply, part of AD-AS model in Macroeconomics.

A vertical long-run supply curve set by labour market equilibrium.

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