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1) Suppose the marginal product of labor in the economy is given by MPN = 0.002(16,000 - N ), while the supply of labor is
1) Suppose the marginal product of labor in the economy is given by MPN = 0.002(16,000 - N), while the supply of labor is 1000 + 1000w. (20 points)
(a) Find the market-clearing real wage rate and level of employment. (b) What happens to the wage rate and employment if wealth rises, reducing the supply of labor
to 500 + 1000w? (c) What happens to the wage rate and employment if after wealth has risen as in part (b), there is
a productivity shock that increases the marginal product of labor to MPN = 0.0025(16,000 - N)?
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