288
MACROECONOMICS
20.
Real Profits are given by
=
q
-
wN
-
(
r
+
)
K,
where,
q
=
AK
1
-
N
.
21.
With
Y
=
AK
1
-
N
, we have
MP
N
=
(
Y
/
N
)
.
The aver-
age product of labour (
Y
/
N
) diminishes as employment
increases resulting in a downward-sloping
MP
N
curve.
22.
If productivity shocks are persistent and long lived, there
would be less incentive for agents to increase the current
labour supply because the future output would also rise
and increase the income effect while reducing the
substitution effect.
23.
Nicholas G. Mankiw, “Real Business Cycles: A New Keynesian
Perspective,” ...
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