Answer to Question #180004 in Macroeconomics for Daniel

Question

in an economy where the conditions of the sticky wage model of the aggregate supply hold the production function is given by Y=L0.6, where is L is quantity of labor employed and the target wage is 1.calculate the natural rate of output (potential GDP)

Answer 1

An economy's natural level of output occurs when all available resources are used efficiently. It equals the highest level of production an economy can sustain. It is natural because an economy returns to its natural level of outputfollowing a recession or overheated period.