1. Consider the following model of the economy:

where the initial values of A = 6 and K = 10.

The initial conditions in the goods market are as follows:

G = 100

T= 100

The initial conditions in the asset market are as follows:

L = 78 + 0.5Y- 1000(r + ^e) Nominal Money supply: M = 1800 Expected inflation is equal to 2% (^e = 0.02)

1 a) (6 points) Solve for the labor market clearing real wage (w*), the profit maximizing level of labor input (N*), and the full employment level of output (Y*). Please show your work.