What happens to economic output and employment

Reference no: EM13222364

Production Functions and the Labor and Capital Markets. Assume that an economy is initially at its full-employment level of output, that labor supply is a positive function of the real wage, and that the capital stock is a positive function of the real (rental) cost of capital.

a. Use diagrams of the production function and the labor market to clearly and accurately show the economy's initial level of employment, economic output, and the real wage. These diagrams should be drawn in BLACK.

b. Provide an economic explanation of what you have shown in your diagrams in part a.

c. Use diagrams of the production function and the capital market to clearly and accurately show the economy's initial capital stock, economic output, and the real (rental) cost of capital. These diagrams should be drawn in BLACK.

d. Provide an economic explanation of what you have shown in your diagrams in part c.

e. Now suppose that the economy experiences a significant influx of immigrants of working age. Based only on this additional information, clearly and accurately show what effect this would have on economic output, employment, the real wage, the capital stock, and the real (rental) cost of capital in your diagrams in parts a and c. These changes should be drawn in RED.

f. Provide an economic explanation of the changes you have shown in your diagrams above, i.e., be sure to discuss what happens to economic output, employment, the real wage rate, the capital stock, and the real (rental) cost of capital and to explain why these changes take place.

g. Now suppose that these immigrants are particularly talented so that the country's total factor productivity increases. Incorporating only this additional information, clearly and accurately show what effects this would have on economic output, employment, the real wage, the capital stock, and the real (rental) cost of capital in your diagrams in parts a and c. These changes should be drawn in BLUE.

h. Provide an economic explanation of the changes you have shown in your diagrams above, i.e., be sure to discuss what happens to economic output, employment, the real wage rate, the capital stock, and the real (rental) cost of capital and to explain why these changes take place.

Reference no: EM13222364

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