Essay
-The table above shows the aggregate production function in the economy of Prescottia. The people of Prescottia taxes and are willing to work 248 million hours a year for a real wage rate of $8 an hour, and for each dollar incr the real wage, they are willing to work 4 million additional hours per year.
a) Draw the economy's aggregate production function.
b) Prescottia's demand for labor schedule is in the table above. Draw Prescottia's demand for labor and supply curves.
c) What are the economy's full- employment quantity of labor and real wage rate? What is the country's potent GDP?
d) Suppose that Prescottia's government introduces a 25 percent income tax. Using your graph, what happens t demand for labor? What happens to the supply of labor? Explain.
e) After the tax is imposed, what happens to Prescottia's full- employment quantity of labor? What happens to Prescottia's potential GDP?
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quantity of labor decreases from 280 to ...View Answer
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