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Ic. Find out surplus/shortage of labor at minimum wage of AED1200, and Equilibrium quantity at Equilibrium wage of AED1000.(2 marks) Wage Labor supply 1200D we Labor demand 0 Quantity of Labor LDio ists

HOIULUS) (45 minutes) ( 15 marks) 3a. Evaluate the followings from the figure given below: (5 marks) (G) Explain Vertical money supply curve (2 marks) (ii) If interest rate increased to rl (above equilibrium interest rate) what will happened to demand.( 1,5 marks) (ii) If interest rate decreased to r2 (below equilibrium interest rate) what will happened to demand. (1.5 marks) Equilibrium in the Money Market... Money supply Money demaned “亻 Quantity rhond by the Fed S Quantity of Money

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Answer #1

(1c)

AED 1200 is higher than Equilibrium wage rate, so when wage rate is AED1200,

Quantity of labor demanded = LD10

Quantity of labor supplied = LS15

Surplus = LS15 - LD10

At equilibrium wage rate of AED1000,

Equilibrium quantity of labor = LE12

(3a)

(i) In any economy, the quantity of money supplied is determined and fixed by its Central Bank. Since money supply is autonomously determined, the quantity of money is fixed at a point of time and money supply curve is vertical.

(ii) If interest rate rises above equilibrium interest rate, opportunity cost of holding money increases, therefore quantity of money demanded decreases at a level lower than the quantity of money supplied.

(iii) If interest rate falls below equilibrium interest rate, opportunity cost of holding money decreases, therefore quantity of money demanded increases at a level higher than the quantity of money supplied.

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