2) The short and medium run a) Suppose that the mark-up of goods prices over marginal costs is 10% and that the wage-setting equation is W = P(1 – u), where u is the unemployment rate. Calculate the real wage, as determined by the price-setting equation and the natural rate of unemployment. b) Consider a situation (A) where the government increases its spending G, while keeping the taxes T unchanged leading to an expansionary fiscal policy. Show in diagram below, what happens to output and prices in the (B) short run and (C) medium run? Don’t forget to label the axis.(images)

2) The short and medium run a) Suppose that the mark-up of goods prices over marginal costs is 10% and that the wage-setting equation is W = P(1 – u), where u is the unemployment rate. Calculate the real wage, as determined by the price-setting equation and the natural rate of unemployment. b) Consider a situation (A) where the government increases its spending G, while keeping the taxes T unchanged leading to an expansionary fiscal policy. Show in diagram below, what happens to output and prices in the (B) short run and (C) medium run? Don’t forget to label the axis.(images)

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter5: Buying The Necessities

Section5.2: Cloting Choices

Problem 1R

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