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let w=W/P be the real wage rate, were W is the nominal wage rate and P is the aggregate price level. The demand for labour is given by D(w)= 1-w and the supply of labour is described by the equation
S(w)=w. suppose that, if N is the employment level, then f(N) is the aggregate output.
Q1-if nominal wage is always such that the labour market clears, then the aggregate supply curve is given by equation-
a) Y=Pf(N)
b) Y=f(N)
c) Y=Pf(1/2)
d) Y=f(1/2)
consider the above labour market situation with the following change. suppose the nominal wage rate W is always such that it minimizes [D(W/P)-S(W/P)] subject to the constraint W=>Wo where Wo >0 is an exogenously given nominal wage.
ques) given the price level P, the nominal wage W is
a) min (Wo , P/2)
b) max (Wo , P/2)
c) 1/2
d) Wo/2
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