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4. [22 points] The labor market and the supply side of a macroeconomy in 2019 are described by the following equations: Production Function Y
4. [22 points] The labor market and the supply side of a macroeconomy in 2019 are described by the following equations: Production Function Y = aN, Price Markup P Wage Adjustment W = W _1 1 + where Y is output, N is employment, P is price, W is current nominal wage, N* denotes the full-employment level of employment, and a, z, and E are all positive parameters. We also have the following information: V -500, a=4, z=o.6, 8=0.8, and P=IO in2018. (a) [10 points] Derive the AS curve for 2019. Show your work. Assume that the AD curve for the economy in 2019 is given by Y 2 10000 =1000+ (b) [12 points] Find the equilibrium levels of (i) output, (ii) price, and (iii) nominal wage in 2019. Notice that price level cannot be negative in equilibrium. Show your work.
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