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Questions › DSE › DSE 2017 › Q42
2 marks, −0.666666666666667Macroeconomics › AD-AS model › Classical aggregate supplyModerateabout 3 min

DSE 2017 Question 42: AD-AS model

Let w=W/Pw=W/Pw=W/P be the real wage. Labour demand is D(w)=1−wD(w)=1-wD(w)=1−w and labour supply is S(w)=wS(w)=wS(w)=w; with employment NNN, output is f(N)f(N)f(N). If the nominal wage always makes the labour market clear, the aggregate supply curve is given by

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Let w=W/P be the real wage. Labour demand is D(w)=1-w and labour supply is S(w)=w; with employment N, output is f(N). If the nominal wage always makes the labour market clear, the aggregate supply curve is given by (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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