Real wages

1. In an economy whose workers come to believe that real wages will be declining in the future, how could the current real wage and equilibrium level of employment be affected?2a. Considering a closed economy, and assuming that at equilibrium Y=Cd+Ic+G explain how the level of national savings could be measured and the purpose to which those savings would be put.2b. Discuss the effects of an increase in the govt. deficit in the context of this model.3a. Explain how the real interest rate may be said to determine equilibrium in the goods market.3b. In this framework, explain why increased household consumption could be seen as problematic.4a. According to the life cycle model, explain how age would effect the changes in savings out of a given income in response to change in wealth.4b. In the life cycle perspective, how might one argue the response of consumers to a change in govt. purchases will be the same whether the purchases are paid for by borrowing or by increasing current taxes.5a. What is meant by a “negative productivity shock?”5b. Contrast the effects of such a shock.5c. If the real wage is rigid.5d. If the real wage is flexible.6a. What is meant by the “user cost of capital” and how does it influence the economy’s optimal capital stock.6b. Distinguish between the roles of net investment and gross investment in terms of an economy achieving its optimal capital.7. An aggregate production function showing diminishing returns to labor:7a. What problem does that create in using such a production function to show how the labor market operates over the business cycle?7b. How might the problem be resolved?

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