As per the HOMEWORKLIB POLICY guidelines, answering the first four questions
Question 3: (45 marks] Suppose the price-setting equation is given by P= (1 + m)W where...
Question 3: (45 marks] Suppose the price-setting equation is given by P= (1+mW where m is the markup. The wage-setting equation is given by W = pe? where z are unemployment benefts and u is the unemployment rate. 1. Derive the real wage and unemployment consistent with equilibrium in the labor market in the medium run. Is this the natural rate of unemployment? Does the equilibrium rate of unemployment change if unemployment benefts decrease? Explain? (8 marks] 2. Draw the...
Suppose that the price-setting equation also takes into account the price of energy (another input in production). In particular, P= (1 + m)Wql-a where q is the price of one unit of energy. The wage-setting equation is given by W = pe? 4. Derive the real wage and unemployment consistent with equilibrium in the labor market in the medium run. How does the equilibrium unemployment rate change when the price of energy decreases? What is the intuition for this result?...
Question 2 (5 marks) The wage setting relation W PE(u, z) developed in lectures and in Blanchard, for the situation where P=P®, can be drawn in real wage/unemployment space as follows: W/P WS (Wage setting relation) u (a) (b) Explain why an increase in the unemployment rate would be associated with a lower real wage rate. Explain what effect an increase in the unemployment benefit rate would have on this wage setting relation. Explain the effect an increase in firms'...
Question 2 (5 marks) The wage setting relation W = PF(u, z) developed in lectures and in Blanchard, for the situation where P = Pe can be drawn in real wage/unemployment space as follows: W/P WS (Wage setting relation) u (a) (b) Explain why an increase in the unemployment rate would be associated with a lower real wage rate. Explain what effect an increase in the unemployment benefit rate would have on this wage setting relation Explain the effect an...
Question 2 (5 marks) The wage setting relation W = PF(u, z) developed in lectures and in Blanchard, for the situation where P=pe, can be drawn in real wage/unemployment space as follows:- W/P Į Į Į Į I Į I WS (Wage setting relation) ue (a) (b) Explain why an increase in the unemployment rate would be associated with a lower real wage rate. Explain what effect an increase in the unemployment benefit rate would have on this wage setting...
Suppose that the markup of goods prices over marginal cost is 5%, and the wage-setting equation isW = P(1-u)where u is the unemployment rate.The real wage, as determined by the price-setting equation is _______.The natural rate of unemployment is _______%.
. Question 2 (5 marks) The wage setting relation W = PECU. z) developed in lectures and in Blanchard, for the situation where P=pe, can be drawn in real wage/unemployment space as follows: t t W/P WS (Wage setting relation) t + (a) (b) Explain why an increase in the unemployment rate would be associated with a lower real wage rate. Explain what effect an increase in the unemployment benefit rate would have on this wage setting relation. Explain the...
Question 1: (a) The Wage Setting Relation is given by: WS: W-1"F(u, z) Explain the effect of an increase in the unemployment rate, u, on nominal wage, W. Be sure to explain both intuitively using words and using the above equation. (b) The Price Setting Relation is given by: PS: P (1 m)W Explain the relationship between monopoly power and the markup, m. (c) Re-arrange PS and show that an increase in the markup leads to a decrease in the...
Suppose that the firms' markup over cost is 10% and that the wage determination equation when Pe=P is W = P(1-u) where u = unemployment rate (assume for simplicity, that the catch-all variable z does not enter wage setting). What is the natural rate of unemployment? (please answer in the form 0.xxxx (which 4 digital places), e.g. 0.1234 representing 12.34%)
Suppose that the firms' markup over cost is initially 10% and that the wage determination equation when Pe=P is W = P(1-u) where u = unemployment rate (assume for simplicity, that the catch-all variable z does not enter wage setting). Now suppose that there is a permanent increase in the oil price that increases the markup to 15%. Keeping all else constant, what is the absolute change in the natural level of unemployment (i.e. Un2- Un1 = ?) ? (please...