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Explain business cycle ?uctuations

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1. Consider the Real Business Cycle model of Figure 14.11a. How does the labor supply curve need to shift for the model to explain business cycle ?uctuations? What might cause such a shift?

2. An economy is dominated by two industries, both of which are considering whether to initiate a major investment project. If both industries invest, then employment and produc- tivity are high and each industry makes pro?ts of $5 billion. However, if neither industry in- vests, the economy is weaker and each industry makes $1 billion pro?t. If only one industry invests, then the industry that doesn't makes $2 billion pro?t but the additional costs of the investing industry mean that it loses $1 billion.

Reference no: EM13887978

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