Macro- & Monetary Economics

Prio: Normal, Part I: Neoclassical Model, Type: MC, Quiz 1

Suppose that the government subsides employment, i.e. the government pays firm s units of consumption goods for each unit of labor that the firm hires. The firm's profits are given by zF(K^*,N^d) - wN^d + sN^d. When the subsidy rises,

  • The firm's demand for labor goes down
  • The firm's demand for labor is unaffected
  • The firm's demand for labor goes up
  • The firm's demand for labor is inelastic with regards to changes in the real wage
 

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