QUESTION 15 The demand for labor decreases with _____ the HH preferences for labor versus leisure shifting towards leisure the supply of labor. the marginal product of labor decreasing a negative productivity shock the marginal cost of labor increasing. the price of output produced increasing
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This means that households are choosing to work less and have more leisure time, leading to a decrease in the demand for labor. Show more…
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16. Start at full-employment (FE) equilibrium with flexible wages and worker misperception of price level changes in the short run. Suppose then that we have a decrease in Aggregate Demand. What are the short-run effects on the price level (P), output level (Q), the wage level (W), employment (L), and unemployment (U)? 1- P increases, Q increases, W increases, L increases, U decreases 2- P decreases, Q decreases, W increases, L increases, U decreases 3- P increases, Q increases, W decreases, L decreases, U increases 4- P decreases, Q decreases, W decreases, L decreases, U increases 5- P decreases, Q increases, W decreases, L increases, U increases
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Suppose the representative household has preferences given by u(c,l) = log(c) + θ log(l), where c is consumption, l is leisure and θ > 0 is a parameter. There is no capital in this model. Firms only use labor as an input into production. The production function is given by F(L) = AL^{1-α}, where A > 0 is productivity parameter, L is labor hired by the firms, and 0 < α < 1 is a parameter. Firms hire workers in a competitive labor market where the wage is w: 1. What will be the equilibrium wage? (Hint: Solve for labor supply equation from the household first order condition, and firm's labor demand condition. Then equate labor demand to labor supply to derive equilibrium wage)
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