Abstract
First of all have a look at the goods market. Output is determined by consumption plus investment Y = C + I, hence the goods market is in equilibrium. Firms produce a homogenous commodity with the help of capital and labour. Assume a Cobb-Douglas technology Y = Kα Nβ with α > 0, β > 0 and α+ β = 1. Firms maximize profits II = pY − rpK − wN under perfect competition. For that reason, the interest rate corresponds to the marginal product of capital r = ∂Y/∂K = αY/K. From this one can deduce the desired stock of capital K* = αY/r. Likewise real wages agree with the marginal product of labour w/p = ∂Y/∂N = βY/N. Properly speaking N denotes labour demand which adjusts endogenously. On the other hand \(\overline{N}\) symbolizes labour supply which is given exogenously. Let labour supply \(\overline{N}=\overline{{{N}_{0}}}{{e}^{n\Gamma }}\) expand at the natural rate n = const, where τ stands for time.
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© 1992 Physica-Verlag Heidelberg
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Carlberg, M. (1992). Short-Run Equilibrium. In: Monetary and Fiscal Dynamics. Studies in Contemporary Economics. Physica-Verlag HD. https://doi.org/10.1007/978-3-642-47689-1_27
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DOI: https://doi.org/10.1007/978-3-642-47689-1_27
Publisher Name: Physica-Verlag HD
Print ISBN: 978-3-7908-0619-9
Online ISBN: 978-3-642-47689-1
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