Answer to Question #283714 in Macroeconomics for ABEX

Question

16. Suppose the supply side of an economy is characterized by:

A production function: Q = 3LK; where Q = output, L = labor, and

K= capital

Labor demand: LD = 10 - 2W/P , where W = nominal wage, P = price

Labor supply: LS = 4P/W ; and

Capital stock is fixed at K = 4.

(a) Derive the aggregate supply curve.

(b) Which cases (intermediate Keynessian, extreme Keynesian, classical) does the supply curve represent?

(c) How would your answers to (a) and (b) change if nominal wage

was fixed at 3?

Answer 1

$Solution$

$4p^2=w(10-2w)\\ 4p^2=10w-2w^2\\ Ls=4p^2-2w^2+10w\\ Ls=8p-4w+10$

B)extreme Keynesian

C)the labor supplied will decrease