2. Representatives of the classical school developed the theory of general equilibrium of markets and prices

1. m_t - p_t=δ(p_t+1-p_t)

p_t= ( )m_t+ ) p_t+1

p_t= m_{t +} m_{t+1 +} p_t+2
p_t+1= ( )m_t+1+ ) p_t+2

p_t+2 = ( )m_t+2 + ) p_t+3

p_t= m_{t +} m_{t+1 +} m_t+2 + p_t+3
p_t= ₊ m_{t+1 +} m_t+2 + m_t+3 +…]
m_t - p_t=δ(Ep_t+1-p_t)
p_t= ₊ m_{t+1 +} m_t+2 + m_t+3 +…]
2. Representatives of the classical school developed the theory of general equilibrium of markets and prices. According to their general concept of equilibrium, there can be equilibrium in the economy only in conditions of full employment. The classical model of macroeconomic equilibrium is based on the premise that production volume is a function of resource employment and production technology, and is potentially maintained by a flexible pricing mechanism. The market economy ensures the full employment of all available resources through a flexible pricing mechanism.
A distinctive feature of the classical model of macroeconomic equilibrium is that it provides for the principle of monetary neutrality. This model is based on the principle that the money supply has no effect on real production. In the classical model, money is needed by market agents only to serve transactions, that is, to perform purely technical functions in the trading process. On this basis, the concept of classical dichotomy was formed by the classics.In the concept of classical dichotomy - two parallel markets, real and money markets is operated separately, it is believed that the balance between them is provided by automatic stabilizers.
The money market ensures equality of investments and savings, as well as full employment. However, at the natural level of unemployment, it is believed that there may be "voluntary" unemployment. This means that the production volume (Y) at the equilibrium point of AD and AS is equal to its potential volume (Y *). It is argued that the accumulation of a portion of the income generated in the economy does not lead to a shortage of aggregate demand to cover aggregate supply, as every accumulated money is invested by entrepreneurs.
R

S
R

I
I, S

I=S
If entrepreneurs invest in the amount of household savings, production and employment levels will remain constant.
According to classical economists, capitalism has its own money market, which ensures the equality of savings and investments. In this case, the equalizing factor is the interest rate . That is why there will be full employment. These economists believe that while government intervention in the economy is short-term, it has long-term consequences, as it ultimately leads to unnatural interference in the natural movement mechanism of the market economy.
Keynes proved that macroeconomic equilibrium can be achieved even in conditions of incomplete employment, that full employment is not legal, but can only happen by chance in an unregulated economy. The theory also argues that fluctuations in the economy are not only due to war, natural disasters and similar situations, but can also be caused by the negative effects of internal factors in peacetime. The origin of unemployment and inflation is directly related to investment and savings. Rising prices and falling wages, among other negative factors, lead to economic instability

4. a. The marginal product of labor is

𝑀𝑃𝐿= =
and obviously an increase of the amount of human capital H increases the marginal product of labor as well.
b. The marginal product of human capital is
𝑀PH= =
and obviously an increase of the amount of human capital H decreases the marginal product of labor as well.
c. The income share paid to labor is
𝐿×𝑀𝑃𝐿= = 𝑌
and similarly, the income share paid to human capital is
𝐻×𝑀𝑃𝐻= = 𝑌
Since both labor payment and human capital payment goes to the worker, they will receive 2/3 of the total income.
d. The ratio of skilled wage over unskilled wage is

and obviously the increase of human capital H decrease this ratio.
e. Yes, as shown by our previous results, as more and more people get higher education, the amount of human capital H in the economy increases, which actually reduces the wage difference between educated workers and uneducated workers. This will help to create a more egalitarian society.
5. a.
Solution
National Savings = Y – C – G = 5000 – (250 + .75(5000-1000)) – 1000 = 750
Private Savings = Y – T – C = 5000 –1000 – (250 + .75(5000-1000)) = 750
Public Savings = T – G = 1000 – 1000 = 0.


b.
Solution
750 = 1000 – 50r thus 50r = 250 and r =5.


c.
Solution
National Savings = Y – C – G = 5000 – (250 + .75(5000-1000)) – 1250 = 500
Private Savings = Y – T – C = 5000 –1000 – (250 + .75(5000-1000)) = 750
Public Savings = T – G = 1000 – 1250 = -250.


d. Solution
500 = 1000 – 50r thus r = 10.

BOIROVA MARDONA