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- The labor market model (II): Now we add some parameters to the labor market model: labor supply: Ls = × w + labor demand: Ld = - w The parameters in this setup are , , and . (Notice that parameters are denoted with an overbar, a convention we will maintain throughout the book.) The parameter represents the number of hours workers would supply to the market even if the wage were zero; it therefore reflects the inherent amount of time people like to work. The parameter , in contrast, reflects the amount of labor the firm would like to hire if the wage were zero. It might be thought of as some inherent capacity of the firm (perhaps because the firm owns a given amount of land and capital that cannot be altered). (a) What is the economic interpretation of ? (b) What are the endogenous variables in this model? (c) Solve for the equilibrium of the labor market. That is, solve for the endogenous variables as a function of the parameters of…i Suppose that the economic model is wage = Bo+B₁exper+B₂exper² + ε. In the terminology of this class, is this a linear model? ii Suppose that the economic model is wage = 80+ experi Bo In the terminology of this class, is this a linear model? + E.Suppose that all social programs simultaneously become more generous. In particular, suppose that there is an increase in UI benefits, and also an increase in welfare benefits, which are represented in the two-sided search model as payments to everyone who is not in the labor force. What will be the effects on the unemployment rate, the vacancy rate, the labour force, the number of active firms, the aggregate output, and the labour market tightness? Draw the two-sided search model diagrams and explain the results and economics intuitions. Imagine you need to explain the mechanisms to your friends who do not seem to have learned the two-sided search model, so you may need to start with introducing key economic concepts very clearly. (Hints: for simplicity, assume the case when there is a uniform payment p to each person not in the labour force, and an increase by p in the employment insurance benefit.)
- Economics Consider the following one-period model. Consumer Utility function over consumption (C) and leisure (L) 1 1 U(C,L) = C2L2 Total hours: H = 40 Labour hours: NS = H-L Non-labour income: TT Lump-sum tax: T Hourly wage: W Firm Production function: Y = zF(Nd) = zNd Total factor productivitiy: z = 2 %3D Government Government spending (exogenous): G = 20 Suppose that the total factor productivity, z, increases to 4. What is the income effect of this wage change on labour supply(NS)? A. +6.89 B. +4.39 C. -6.89 O D. -4.39 O E. None of the aboveConsider the following model of the factors that influence a person's annual wage: Y = β0 + β1X1 + β2X2 + β3X1X2 + β4X3 + u where Y = annual wage, in dollars X1= years of formal education X2 = age, in years X3 = variable equal to 1 if male, 0 otherwise U = error term Which of the following is the interpretation of β1 alone? The effect of X1 on Y when X2 = 0 The effect of X1 on Y when X2 is at its median value. The effect of X1 on Y, holding all else equal. The effect of X1 on Y when X2 is at its mean value.The outbreak of COVID-19 adversely attacks most economies. Some economists e/2 argue that the impacts on the macroeconomy mainly come from (i) the reduction in consumption and investment appetite, while others believe that the impacts mainly come from (ii) the immediate destruction of the supply-chain and production. Suppose two quarters since the outbreak of the COVID-19, changes in selected macroeconomic data of Country X can be summarized as below: Last year This year Annualized economic growth rate 4% -6% Unemployment rate 5% 8% Inflation rate 2% 5% Using an AD-AS model, explain whether argument (i) or (ii) above fits better to а. the case of Country X. b. Given your answer in (a), briefly discuss one plausible short-run dilemma facing the central bank of Country X.
- 1. Given ln Qda = 2.35 – 0.12 ln Pa - 0. 25 ln Y + 0.18 ln Pb – 0.26 ln Pc, (all in logarithmic form), which of the following is correct? Note: Qda is the quantity demanded for product “a”, Pa is the price of product “a”, Pb is the price of product “b”, Pc is the price of product “c” and Y is the income, ln means natural logarithm. A. the demand for product “a” is price inelastic B. the demand for product “a” is price elastic C. a 1% increase in the Pa will cause a 0.12% decrease in the demand for product “a” D. A and C are correct E. B and C are correct 2. Given: ln Qda = 2.35 – 0.12 ln Pa - 0. 25 ln Y + 0.18 ln Pb – 0.26 ln Pc, (all in logarithmic form), which of the following is correct? The definition of the variables are found in #1. A. product “a” and product “b” are substitutes B. product “a” and product “b” are complementary C. a 1% increase in the Pb will increase the demand for “a” by 0.18% D. A and C are correct E. B and C are correct 3. Given: ln Qda = 2.35 – 0.12 ln Pa…Describe the neoclassical model of labor -leisure choice model by emphasizing the objective function, constraint and optimality conditions?1. Why is the interest rate irrelevant in the one-period general equilibrium model? What is the mechanism for the interest rate affecting labour supply in the two period model?
- Consider the possibility that government spending increases the amount of hours to be worked in a given time period, say by providing child care. Assume again that the initial amount of consumption and leisure are still just affordable after an increase in spending. How will an increase in government spending affect consumption, hours worked, output and welfare? [Hint: This exercise requires creatively reinterpreting how we apply our model to the data. Think about how we constructed the bounds on our labor/leisure model in terms of hours worked. Remem- ber our model does not have any sleep requirements built into it for instance.]Consider the following macroeconomic model: Y = C + Io + Go C = a + b(Y-T) T = d+tY Where the endogenous variables are Y, C and T, while the exogenous variables are G₁ and I. The parameters are such that a > 0,d>0,0Explain in detail what are Computable General Equilibria Models?SEE MORE QUESTIONS