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Consider an economy with the following Cobb–Douglas production function: Y 5 5K 1/3 L 2/3 .
a. Derive the equation describing labor demand in this economy as a function of the real wage and the capital stock. (Hint: Review Chapter 3.)
b. The economy has 27,000 units of capital and a labor force of 1,000 workers. Assuming that factor prices adjust to equilibrate supply and demand, calculate the real wage, total output, and the total amount earned by workers.
c. Now suppose that Congress, concerned about the welfare of the working class, passes a law setting a minimum wage that is 10 percent above the equilibrium wage you derived in part (b). Assuming that Congress cannot dictate how many workers are hired at the mandated wage, what are the effects of this law? Specifically, calculate what happens to the real wage, employment, output, and the total amount earned by workers.
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Which of the following best describes the aggregate demand and aggregate supply model?
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Suppose that the United States and the United Kingdom both use the gold standard. Their prices of gold are $35 = 1 ounce and £7 = 1 ounce, which yields an implied exchange rate of $5 = £1. Now suppose that the exchange rate temporarily rises to $5.50..
Ethanol or ethyl alcohol is a motor fuel produced from sugarcane, corn or other sugar based feed stocks. In the United States, where ethanol production uses corn as feedstock, the Energy Policy Act requires that a minimum quantity of renewable fuels ..
critically estimate the theory and empirical evidence on the optimality criterion for choosing an exchange rate regime.
What is the difference between a change in supply and a change in quantity supplied?
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