. Consider the AD-AS model in a closed economy. Firms are perfectly competitive and the price level P is flexible. Output Y is produced according to the production function Y = F(L), where L is employment. Employment is chosen by firms to maximize profits. (a) [3 marks] Show that the first-order condition for profit-maximizing labour demand is W/P = F 0 (L). Assume nominal wages W are contractually fixed at W = W, and that workers' desired labour supply (which increases with the real wage) is greater than firms' labour demand at the fixed nominal wage. (b) [4 marks] Assume the marginal product of labour is diminishing. Using a diagram to represent the labour market, show how the short-run aggregate supply curve is derived. (c) [4 marks] Use the AD-AS model to find the effects of a decrease in the money supply on GDP, prices, and unemployment. Are the predictions of the model consistent with Okun's law?