Determination of l in the cross model, Macroeconomics

Assignment Help:

Determination of L in the cross model

As firms will produce less than YOPT, they require less labor than LOPT. We can determine exactly how much L they need in order to produce Y* and this level of L is denoted by L*.

1109_Determination of L in the cross model.png

Figure: Determination of L in the cross model

1. Start at bottom left. Here equilibrium level of GDP (denoted by Y*) is determined. We can add Y* on the y-axis as well because YD = Y* in equilibrium. 

2. Extend Y* to bottom-right graph. This is aggregate supply. 

3. From the production function we can determine exactly how much labor we need to produce Y*. This amount is signified by L*. 

4. Extend L* up to upper right-hand graph. As real wage is fixed, we should be on horizontal line and we find the equilibrium for the labor market. 

5. In the same figure you would also find LOPT, quantity of labor firms would choose if aggregate demand was enough. 

Note a crucial difference amid classical and Keynesian model: in classical model we first figure out L and go from L to Y whereas in cross model we go from Y to L.


Related Discussions:- Determination of l in the cross model

Economics 10, The demand for money schedule shows that the quality of money...

The demand for money schedule shows that the quality of money that people want to hold

Estimate paper by stock and watson in a bayesian manner, estimate paper by ...

estimate paper by stock and watson in a bayesian manner

Calculate the overall efficiency and operating cost, A company is consideri...

A company is considering investing in power generation. It wants to setup a 1000 MW power generation system. The company hired you as a consultant to explore different options for

Trade, What is the difference between heckscher_olin theory and comparative...

What is the difference between heckscher_olin theory and comparative theory

Difference between project proposal and project feasibility , Project feasi...

Project feasibility study is needed to make a decision whether the project proposal is technically and economically possible. After finalization of the project feasibility report b

Testing the hypothesis, An effort to reduce energy costs, a major universit...

An effort to reduce energy costs, a major university has installed more efficient lights as well as automatic sensors that turn the lights off when no movement is present in a room

Large department store, Suppose in a large department store, the average nu...

Suppose in a large department store, the average number of shoppers is 448, with a standard deviation of 21 shoppers. We are interested in the probability that a random sample of 4

Compute the lost social welfare, Consider a market where supply and demand ...

Consider a market where supply and demand are given by QXS = -18 + PX and QXd = 90 - 2PX. Suppose the government imposes a price floor of $41, and agrees to purchase any and all un

Increase in income, How does an increase in income affect a consumer's budg...

How does an increase in income affect a consumer's budget line and their total utility?

Interest rates and inflation, Q. Interest rates and inflation? Assume y...

Q. Interest rates and inflation? Assume you have 1 million on 1st January 2008. A basket of services and goods similar to the CPI basket costs 100,000. You can then purchase ex

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd