Suppose the economy's production function is Y = A(300N – N^2). The marginal product of labor is MPN = A(300 - 2N). Suppose that A = 10. The supply of labor is NS = 0.05w + 0.005G.
(a) If G is 26,000, what are the real wage, employment, and output?
(b) If G rises to 26,400, what are the real wage, employment, and output?
(c) If G falls to 25,600, what are the real wage, employment, and output?
(d) In cases (b) and (c), what is the government purchases multiplier; that is, what is the change in output divided by the change in government purchases?