Exercise 1: Answer the following question. Justify your answers The following Table describes the labour market for the whole economy of a given country. Opportunity cost of an additional unit | Output per additional unit of labour Units of labour of labour in terms of units output = = Real value of Marginal Real Opportunity Cost of one Productivity of an additional unit of additional unit of labour labour (1) (2) (3) 60 9 80 N- 8 100 3 7 120 4 6 160 5 5 180 6 200 3 220 N a) Carefully draw the demand and supply curves of labour on a diagram and find the equilibrium real wage and the equilibrium level of employment. No need to load your diagram on the Acorn Website. b) Which columns of the previous Table have you used to draw the Supply curve and the demand curve? To each level of employment corresponds a real GDP as in the following Production function table. Production Function Schedule Level of Aggregate Employment quantity supplied = real GDP 100 150 120 500 140 800 160 1000 180 1300 200 1350 c) Find the full employment real GDP, aggregate quantity supplied AQS, and nominal wage for each of the following price levels P = 1, 2, 3, and 4. Should the equilibrium levels of employment and output change as the price level P changes? On a separate diagram draw the long run aggregate supply curve. No need to load your diagram on the Acorn Website of this course. Fall 2022 1 1/19/2022 8:41 PM - assignment 3 Fall 2022.doc 2 Suppose that the velocity of money is constant V = 4 and the money supply is M*= 750. d) For each one of the following levels P = 1, 2, 3, and 4, find the aggregate quantity demanded. Plot the corresponding aggregate demand curve on the same diagram as the long run aggregate supply curve. What is the equilibrium price, the equilibrium real GDP and the equilibrium aggregate quantity demanded? What is the equilibrium nominal wage? Suppose now that V = 4 does not change but the money supply decreases to M' = 500. e) What is the new equilibrium price, and the new equilibrium real GDP? What is the new equilibrium nominal wage? What happened to the equilibrium price level P and the equilibrium nominal wage? () Comparing your answers to d) and e) what happened to the equilibrium real GDP, and employment? g) Are your answers to the previous two questions consistent with the observed data on the money supply, the price level, nominal wages real GDP and unemployment during the 1929-1933 depression? (See relevant diagrams in chapter 20)