Question 6 For a given stock of capital and technology (normalized to equal 1 0), the country of Avocado has the following aggregate production function. Y = VI Here Y is real GDP and L is employment. The marginal product of labour is given by MPL =1/(2VL) (a) For employment levels of (0,1,2,3,4,5) calculate Y and the MPL. (L=Y=o,MPL=NA;L=1:Y=1,MPL=0.5;L=2:Y=1 41,MPL=0.35; L=3, Y=1.73,MPL=0.29;L=4,Y=2,MPL=0.25; L=5,Y=2 24,MPL=0.22) (b) As the level of employment increases what happens to the MPL? (It is decreasing.) (c) Suppose the money wage in this economy is 25 and the price level is 100. What will be the level of employment demanded in Avocado? (L*=4) (d) Suppose that the labour supply in Avocado is fixed at L = 3. What value for the real wage will clear the labour market? ((W/P)* = 0.29) (e) In part (d) if the price level is fixed at 100, what is the equilibrium value of the money wage? (W* = 29) (f) Suppose that a sudden inflation in Avocado causes both the price level and money wage to double. What is the effect on the level of employment demanded? (No effect. Real wage is unchanged.)