Consider a Classical model with the following specifications: Labor Supply:

Consider a Classical model with the following specifications:

•Labor Supply: NS = γWP,

• Cobb-Douglas Production Function,

• The Quantity Theory of Money accurately describes aggregate demand,

• The Theory of Distribution holds,

• Parameter values: [γ, α, A, K, M, V ] = [4, 0.2, 50, 100, 150, 10].

Define gt = annualized growth rate of Real GDP between Qt and Qt−1. Suppose in Q2’00 γ(gamma) goes up by 10% due to a sudden change in households’ preferences for working. Find gQ2’00 approximately.

A. gt = 28.13%

B. gt = 23.54%

C. gt = 29.45%

D. gt = 32.32%

 
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