1. [40] Consider a one-period macroeconomic model we studied in Chap 5. Suppose, for simplicity of your analysis and drawing, that there is no government in this problem. (a) Suppose the economy is not in equilibrium and there is excess labour demand. Describe the situation in a diagram and explain what is happening there. Label properly. (b) In the above situation, what is the key variable and mechanism that bring the economy into the competitive equilibrium. If you use a diagram to answer, draw a separate diagram and explain clearly what you draw. (c) Now, suppose the economy is in equilibrium. Describe the situation in a diagram. (d) Show how the equilibrium profit of the representative firm can be measured in the diagram you draw above. Label properly and explain carefully. (You can draw a separate diagram or use the diagram you draw for (c).) (e) In a separate diagram, show that an increase in the Total Factor Productivity could result in a lower equilibrium profit. Give a brief intuition why that could happen. 1. [40] Consider a one-period macroeconomic model we studied in Chap 5. Suppose, for simplicity of your analysis and drawing, that there is no government in this problem. (a) Suppose the economy is not in equilibrium and there is excess labour demand. Describe the situation in a diagram and explain what is happening there. Label properly. (b) In the above situation, what is the key variable and mechanism that bring the economy into the competitive equilibrium. If you use a diagram to answer, draw a separate diagram and explain clearly what you draw. (c) Now, suppose the economy is in equilibrium. Describe the situation in a diagram. (d) Show how the equilibrium profit of the representative firm can be measured in the diagram you draw above. Label properly and explain carefully. (You can draw a separate diagram or use the diagram you draw for (c).) (e) In a separate diagram, show that an increase in the Total Factor Productivity could result in a lower equilibrium profit. Give a brief intuition why that could happen