equilibrium in the labour market

equilibrium in the labour market
MACROECONOMICS 1.Explain what determines equilibrium in the labour market, and show how this in turn determines the aggregate supply of output in the classical model. 2.Compare and contrast the effects of a monetary contraction in a model with rationa
1.Explain why the supply of labour is an increasing function of the real wage,and the demand for labour is a decreasing function of the real wage.
Explain how the real wage will adjust to ensure equilibrium, thus determining the level of employment.
Note that AS curve in the classical model is determined by the production function,which is a function of the level of employment.
2.Briefly explain the concept of adaptive expectations.
 Briefly explain the concept of rational expectations.
 Use the AS-AD framework to examine the different responses to a decrease in AD under each assumption.
 Note that there is no change in output if the decrease in AD is fully anticipated by rational agents.

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