Consider the following model of a closed macroeconomy, The Labour Market Y 63.246N -N2/12 N 63.246-WIP N. = 0.4142W / P (1) (2) (3) (4) Production function Labour demand Labour supply Labour market equilibrium The Goods Market C= 110 +0.75% ) (5) (6) (7) (8) (9) (10) Consumption function Investment function Government expenditure Disposable income Tax function Goods market equilibrium I 10 + 0.2 Y _ 200i G 200 T -333.333 Y=C+I+G The Money Market L = 1 00 + 0.2 Y-200i (11) (12) (13) Money demand Money supply Money market equilibrium MIP 300/ P
4. a) (10 marks) Given the fixed nominal wage imposed in Question 2, suppose the government decided to choose a value of G that would bring the economy back to full employment. What, if any, value of G would achieve this target? Fixed nominal wage: W - 50 b) (5 marks) What values of Y, P, i, N, N,, I, WIP and would this imply? c) (10 marks) Illustrate the effects of this fiscal policy on this economy, in a diagram that includes the labour market, the production function, aggregate demand and aggregate supply, and IS and LM. Explain briefly.