ECON-UA 1 Lecture Notes - Lecture 11: Root Mean Square, Market Clearing, Real Wages
17 Oct 2016
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In inventories government collects taxes pays transfers collects net taxes: taxes - transfers (t) purchases goods and services (g) borrows to nance its budget de cit = g - t no foreign sector. Classical equilibrium explaining employment and real wage (how these two factors are determined in the long run) in the labor market labor supply: depends on real wage = w/p. *greater purchasing power = higher real wage = more people in economy want to supply labor when w/p = ls (ls =labor supply / # of people who want to work) *positive linear relationship labor demand: business rm to hire labor, depends on real wage = w/p when w/p = ld (ld=labor demand / # of worker rms want to hire) *negative linear relationship vertical axis: real wage, horizontal axis: # of workers) L = # of workers (only that can be changed in short run)
