PEA 2023 PEA Q13 | ISI MSQE

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2023 PEA Q13

Given the labour demand and supply derived above, the aggregate supply curve is:

Reveal answer and solution

Answer

Solution

1
Both $L^d$ and $L^s$ depend only on the real wage $W/P$ . Hence equilibrium real wage and employment $L^*$ are independent of $P$ . Output $Y=\bar K^\alpha (L^*)^{1-\alpha}$ is independent of $P$ . AS curve is therefore vertical.

Answer structure / marking notes

This is the classical full-information / flexible-wage AS. A Keynesian rigidity would yield a horizontal or upward-sloping AS.

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Content note

Imported from public/resources/isi/msqe/solutions/pea/2023/ISI_MSQE_PEA_2023_Solutions.tex. Question wording is retained from the available local TeX source; incomplete option blocks or ambiguous source status are flagged for review.