Macroeconomics
(i) Explain the economic intuition behind the upward sloping wage-setting curve in the real wage and employment space?
(ii) Assume that the economy initially at the WS-PS equilibrium. What happens when there is a sudden upswing in the aggregate demand in the economy?
(iii) Use the WS-PS model to graphically derive a set of Phillips curves and explain the economic intuition behind the diagram. Provide an explanation of how a situation of deflation could occur. What are you assuming about the real interest rate in the deflationary scenario?
(i) Assuming ? = ? = 1 in the Loss function and the Phillips curve, derive the MR curve graphically and explain the economic intuition behind the process.
(ii) Using the 3-equation model, provide a detailed period by period analysis of the adjustment process for the case where the economy is hit by a permanent positive aggregate demand shock.
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a) Draw a wage curve and profit curve diagram in which the unemployment rate in equilibrium...
a) Draw a wage curve and profit curve diagram in which the unemployment rate in equilibrium is 6%. Suppose there is an exogenous increase in aggregate demand. Using your diagram, explain carefully why inflation may occur during such an upswing in economic activity. b) Suppose that the expected inflation rate in the economy was 0 and that this occurred at an unemployment rate of 6%. Suppose now that the government tried to boost aggregate demand to hold unemployment at 3%....
Using the WS-PS model, graphically explain the effects of a reduction in the markup on the...
Using the WS-PS model, graphically explain the effects of a reduction in the markup on the equilibrium real wage, the natural rate of unemployment, the natural level of employment, and the natural level of output. Answer: A reduction in the markup will cause firms to [Select] the price given the nominal wage This will cause the real wage based on the price setting behavior to [Select] ; this is represented by a(n) [Select] shift in the [Select] curve. As a...
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Q5 25 points) 5)- Consider if in a given economy, the parliament approves an increase in minimum wage. Starting from the initial medium run equilibrium, discuss the effects of this policy in following questions. (Total 25 points) a)- Using a set of WS/PS curves, and only in labor market, in step by step way, explain the impacts. (6) b)- Using the aggregate supply and demand (AS/AD), and IS/LM curves, show the short and medium run equilibrium points. [No explanation. Only...
1. In the beginning of 2017, the U.S. government predicted that economic growth would rise by...
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Please I need today answer for This question and it is very important and I need solution for this issue with all the details , and help me with all the details.Please write your answer to me by typing, not by handwriting, so that I can read and understand your answer clearly.BR/Hassan The AS-AD model . Consider the AS-AD model discussed in the course. Assume that the real interest rate only affects investment, not net exports. a. Write down the...
Suppose that workers and firms perfectly forecast inflation, so that the real wage remains unchanged as...
Suppose that workers and firms perfectly forecast inflation, so that the real wage remains unchanged as the price level rises over time. Prices and wages rise at the same rate, which implies that the real wage stays constant. The following graph shows the aggregate demand curve (AD) in an economy in long-run equilibrium. Assume the natural rate of unemployment is 6%, and potential output is $50 trillion. Use the orange points (square symbol) to draw the aggregate supply curve in...
QUESTION 7 (25 points): Economic Fluctuation using AD-AS framework Suppose that the short-run aggregate supply curve...
QUESTION 7 (25 points): Economic Fluctuation using AD-AS framework Suppose that the short-run aggregate supply curve has a positive slope and that the economy starts at a long-run equilibrium. Now imagine that 10 million people move to Australia they found that Australians live an average of 10 extra years due to the relax lifestyle that they enjoy. This is a permanent change in Labor in the U.S. economy. (a) (10 points) No Policy Intervention: Using the model of Aggregate Demand...
9. Consider a Classical model with the following specifications in Q1, 2019: . Labor Supply: NS-1%,...
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Using the WS-PS model, graphically explain the effects of a reduction in the markup on the equilibrium real wage, the natural rate of unemployment, the natural level of employment, and the natural level of output. Answer: A reduction in the markup will cause firms to [Select] the price given the nominal wage This will cause the real wage based on the price setting behavior to [Select] ; this is represented by a(n) [Select] shift in the [Select] curve. As a...
Q5 25 points) 5)- Consider if in a given economy, the parliament approves an increase in minimum wage. Starting from the initial medium run equilibrium, discuss the effects of this policy in following questions. (Total 25 points) a)- Using a set of WS/PS curves, and only in labor market, in step by step way, explain the impacts. (6) b)- Using the aggregate supply and demand (AS/AD), and IS/LM curves, show the short and medium run equilibrium points. [No explanation. Only...
Suppose that workers and firms perfectly forecast inflation, so that the real wage remains unchanged as the price level rises over time. Prices and wages rise at the same rate, which implies that the real wage stays constant. The following graph shows the aggregate demand curve (AD) in an economy in long-run equilibrium. Assume the natural rate of unemployment is 6%, and potential output is $50 trillion. Use the orange points (square symbol) to draw the aggregate supply curve in...
QUESTION 7 (25 points): Economic Fluctuation using AD-AS framework Suppose that the short-run aggregate supply curve has a positive slope and that the economy starts at a long-run equilibrium. Now imagine that 10 million people move to Australia they found that Australians live an average of 10 extra years due to the relax lifestyle that they enjoy. This is a permanent change in Labor in the U.S. economy. (a) (10 points) No Policy Intervention: Using the model of Aggregate Demand...
9. Consider a Classical model with the following specifications in Q1, 2019: . Labor Supply: NS-1%, Cobb-Douglas Production Function . The Quantity Theory of Money accurately describes aggregate demand, The Theory of Distribution holds, Parameter values: [y, a, A, K, M, V] [30,0.3, 130, 500, 2500,40]. Suppose a reduction in labor law regulations leads to an outward shift in labor supply, represented as an increase in y from 30 to 32 during Q2, 2019. Assume that everything else stays the...
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Aoife Hoey Mon, Apr 19, 2021 6:26 AM