Exercise 3: Answer the following question. Justify your answers. The following Table describes the labor market for the whole economy of a given country. Assume perfect and full information is available to every participant in this economy, factors of production are perfectly mobile, prices and wages are perfectly flexible, and perfect competition prevails in all Assignment 3, Winder 2021 2202021 8:21 AM assignment 3 Inbeduciory macroeconomics winter 2021 markets Units of Opportunity cost of a worker Reel value of Output per additional labor in terms of units output worker real wage required by an Maximum real wage a producer is additional worker willing to pay for an additional worker (1) (2) (3) 8 10 12 16 18 20 22 a) Carefully draw for yourself the demand and supply curves of labor on a diagram and find the equilibrium real wage and the equilibrium level of employment. No Need to submit the diagram To each level of employment corresponds a level of real GDP given in the following table. Production Function Schedule Level of Aggregate Employment quantity supplied real GDP 10 10 12 40 14 65 16 85 18 100 20 105 by Find the full employment real GDP, aggregate quantity supplied AQS, and nominal wage for each of the following price levels P = 1, 2 ,3, 4, Doas the equilibrium levels of employment and ADS change as the price lavel changes? Is the long run aggregate supply curve downward or upward sloping or is it a vertical line? Suppose that the velocity of money is constant V - 5 and the money supply is M" - 80. For each one of the following levels PI= 1, 2, 3, 4 and 5, find the aggregate quantity demanded AOD according to the quantity theory. Plot for yourself the corresponding aggregate demand curve on the same diagram as the long run aggregate supply curve. You need to submit the schedule of the Aggregate demand curve. What is the equilibrium price level, the equilibrium reel GDP, equilibrium aggregate quantity AQS and the equilibrium aggregate quantity demanded? What is the equilibrium nominal wage? Suppose now that V # 5 does not change but the money supply decreases to M' = 60. dy What is the new equilibrium price, and the new equilibrium real GOP? What is the new equilibrium nominal wage? What happened to the equilibrium price level P and the aquilonum nominal wage? Comparing your answers to c) and di what happened to the equilibrium real GDP, and employment? 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? (Use the relevant diagrams in chapter 20 to justify your answers)