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The production function in an economy is Y = A(6N - 0.0025N), where A is productivity. With this production func- tion, the marginal product of

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The production function in an economy is Y = A(6N - 0.0025N), where A is productivity. With this production func- tion, the marginal product of labour is MPN = 5A - 0.005AN. Suppose that A = 2. The labour supply curve is NS = 55 + 10(1 t)w, = - where NS is the amount of labour supplied, w is the real wage, and t is the tax rate, which is 0.5. Desired consumption and investment are cd = 300 = 0.8(Y - T) - 200r; id = 258.5 - 250r. = Taxes and government purchases are T = 20 + 0.5Y; G = 50. Money demand is d = 0.5Y - 250 (r + m) The expected rate of inflation is 0.02, and the nom- inal money supply M is 9150. a. What are the general equilibrium levels of the real wage, employment, and output? hi b. For any level of output Y, find an equation that gives the real interest rate r that clears the goods market; this equation describes the IS curve. (Hint: Write the goods market equilibrium condition and solve for r in terms of Y and other variables.) What are the general equilibrium values of the real inter- est rate, consumption, and investment? c. For any level of output Y, find an equation that gives the real interest rate that clears the asset market; this equation describes the LM curve. (Hint: As in part (b), write the appropriate equi- librium condition and solve for r in terms of Y and other variables.) What is the general equilibrium value of the price level? d. Suppose that government purchases increase to G= 72.5. Now what are the general equilibrium values of the real wage, employment, output, the real interest rate, consumption, investment, and the price level

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