Consider a macro-economy with short-run aggregate output , where L is labour, the fixed capital stock, , . P is the price level and W the money wage; producers maximize profit competitively. The demand for labour as a function of the real wage is
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Consider a macro-economy with short-run aggregate output Y=AL^α(K̅)^(1-α), where L is labour, K̅ the fixed capital stock, A>0, 0<α<1. P is the price level and W the money wage; producers maximize profit competitively. The demand for labour as a function of the real wage is (A) L^d=(Y/(A(K̅)^(1-α)))^(1/α) (B) L^d=K̅(Aα)^(1/(1-α))(W/P)^(1/(α-1)) (C) L^d=(1/(Aα(K̅)^(1-α)))^(1/α)(W/P)^(1/(1-α)) (D) None of the above
Also written as: Consider a macro-economy with short-run aggregate output Y=AL^(alpha)(K_bar)^(1-alpha), where L is labour, K_bar the fixed capital stock, A>0, 0<alpha<1. P is the price level and W the money wage; producers maximize profit competitively. The demand for labour as a function of the real wage is
Classical macroeconomics has come up 35 times in 7 exams since 2008.
This question is on The classical labour market and employment, part of Classical macroeconomics in Macroeconomics.
How flexible wages clear the labour market and fix employment and output.
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Question from the DSE 2008 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.