open ended macro

• Effects on the model's endogenous real variables when there is an increase in the size of the labor force


  1. NS increases resulting in excess labor supply at the original (W/P)1

  2. W falls, (W/P) falls clearing the labor market

  3. N increases and (W/P) falls

  4. Increase in N increases the level of Y_s

  5. Y up increases S and C

  6. S has increased for the given r, there is excess supply of loanable funds putting downward pressure on r

  7. r falling induces an increase in I and induces a decrease in S (which is an increase in C)

  8. Y up increases the demand for money

  9. Excess money demand represents an excess supply of output

  10. Price level falls to clear the money market