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

Probability of being dealt any two cards greater, 1) Suppose you are dealt ...

1) Suppose you are dealt two cards from a standard deck of playing cards. a) What is the probability of being dealt a pair of aces? b)There are 13 possible pairs possible (Ac

Show the equations of the as-ad model, Q. Show the equations of the AS-AD m...

Q. Show the equations of the AS-AD model? The equations of the AS-AD model To précis the AS-AD model, we can have a glance at its equations. IS-LM model was "solved" by s

Average price-earnings ratio, In a survey of 120 publicly-traded companies,...

In a survey of 120 publicly-traded companies, the average price-earnings ratio was 18.5 with a standard deviation of 8.2. When testing the hypothesis (at the 5% level of significan

Index number, definition and charactoristics of index numbers.problems whil...

definition and charactoristics of index numbers.problems while constructing index numbers

Limitations of rational expectations school, Limitations of the theory of r...

Limitations of the theory of rational expectations: Critics of this theory note that if policy makers have more information about the economy or their own actions than d

Rent, discuss modern theory of determination of rent?

discuss modern theory of determination of rent?

Changes in money market equilibrium, Changes in Money Market Equilibrium ...

Changes in Money Market Equilibrium A shift in either the supply curve for money or the demand curve for money will alter the equilibrium position in the money market (and the

What do you mean by patulin, Q. What do you mean by Patulin? It is a to...

Q. What do you mean by Patulin? It is a toxic and antibiotic metabolite produced by several species of Penicillin, Aspergillus and Paeciliomyces but the most important in the c

Demand and supply, The Australian government administers two programs that ...

The Australian government administers two programs that affect the market for cigarettes. First, media campaigns and labelling requirements aimed at making public aware of the dan

Classical model, using a graph of the classical labour market, illustrate t...

using a graph of the classical labour market, illustrate the effects of a real wage existing in the market that is lower than the equilibruim real wage.what will eventually happen

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