classical economy is described by the following equations: (1) Production function: y = (20N -?N ?) (2) Labour supply function: Ns=4 +20(1-t ) w/p, t =0.2 (3) The proportion of income that is held in the form of money (k) is 0.25 and money supply (M) is 297. (4) Demand for loanable funds function: I =100 -5r (5) Supply of loanable funds function: S =30 +9r Where, y is real output or income, N is employment, W/P is the real wage, W is the nominal wage, P is the price level and r is the interest rate. (a) Derive an expression for the demand for labour function and explain how it is affected by the real wage. (b) Find the equilibrium values of the following variables: i.Real wage (W/P) ii.Employment (N) iii.Real output (y) iv.The price level (P) v.Nominal output (Y) vi.Money wage (W) vii.Interest rate.
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