Calculation of real wage rate given labor demand and supply curve, nominal wage rate. Calculation of long run equilibrium price level and policy makers action (shift in Aggregate Demand Curve).
You are given the following labor demand and labor supply curves for the economy.
d s
N = 250-2(W\\P) N = 3(W/P)
Suppose that the nominal wage rate equals 56. In the short-run, aggregate demand and aggregate supply are equal at a price level of 1.4.
Calculate the real wage rate. Where is actual real output relative to natural real output? Given the aggregate demand curve, suppose that in long-run equilibrium the price level equals 1.6. Compute the value of the nominal wage rate that equates the demand for and supply of labor.
How does the nominal wage rate changes and the SAS curve shift as the economy adjusts from its current short-run equilibrium to the new long-run equilibrium.