Solution-Draw impact of shock on labour demand holding

Draw impact of shock on labour demand holding

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Reference no: EM133063712

Suppose in Friedman-Lucas money surprise model, there is a negative TFP shock. Neither private sector agents nor the central bank can observe this shock directly. The central bank is committed to interest rate targeting.

a. Using labour market diagram, draw the impact of this shock on the labour demand holding the interest rate constant. Provide an explanation

b. Argue that what happened in part (a) will affect the goods market.

c. What action the central bank will take? How will this intervention affect the labour supply and goods market? You do not need to draw any diagram

d. Draw diagrams (labour market, goods market, and money market) to illustrate the final stage of the economy after the shock

Reference no: EM133063712

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Draw impact of shock on labour demand holding

Reference no: EM133063712

Reference no: EM133063712

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