2. The natural rate of unemployment Suppose that the markup of goods prices over marginal cost is 5%, and that the wage-setting equation is w - P(1-u). where u is the unemployment rate. a. What is the real wage, as determined by the price-setting equation? b. What is the natural rate of unemployment? c. Suppose that the markup of prices over costs increases to 10%. What happens to the natural rate of unemployment? Explain the logic behind your answer.

2. The natural rate of unemployment Suppose that the markup of goods prices over marginal cost is 5%, and that the wage-setting equation is w - P(1-u). where u is the unemployment rate. a. What is the real wage, as determined by the price-setting equation? b. What is the natural rate of unemployment? c. Suppose that the markup of prices over costs increases to 10%. What happens to the natural rate of unemployment? Explain the logic behind your answer.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter21: Unemployment

Section: Chapter Questions

Problem 41CTQ: Unemployment rates have been higher in many European countries in recent decades than in the United...

See similar textbooks

Similar questions

If you an? out of school but working part time, are you considered employed or unemployed in U.S. labor statistics? If you are a full time student and working 12 hours a week at the college cafeteria are you considered employed or not in the labor force? If you are a senior citizen who is collecting social security and a pension and working as a greater at Wal-Mart are you considered employed or not in the labor force?
Is it desirable to eliminate natural unemployment? Why or why not? Hint: Think about what our economy would look like today and what assumptions would have to be met to have a zero rate of natural unemployment.
What happens to the labor force participation rate when employed individuals are reclassified as unemployed? What happens when they are reclassified as discouraged workers?
What forces create the natural rate of unemployment for an economy?
What is the difference between the price level and the tale of inflation?
Is the increase in labor force participation rates among women better thought of as causing an increase in cyclical unemployment or an increase in the natural rate of unemployment? Why?
Beginning in the 1970s and continuing for three decades, women entered the U.S. labor force in a big way. If we assume that wages are sticky in a downward direction, but that around 1970 the demand for labor equaled the supply of labor at the current wage rate, what do you imagine happened to the wage rate, employment, and unemployment as a result of increased labor force participation?
Suppose the adult population over the age of 16 is 237.8 million and the labor force is 153.9 million (of whom 139.1 million are employed). How many people are not in the labor force? What are the proportions of employed, unemployed and nut in the labor force in the population? Hint: Proportions ate percentages.
Please no written by hand solutions Suppose that the markup of goods prices over marginal cost is 5%, and that the wage-setting equation is W= P(1-u), where u is the unemployment rate. a. What is the real wage, as determined by the price-setting equation? b. What is the natural rate of unemployment? c. Suppose that the markup of prices over costs increases to 10%. What happens to the natural rate of unemployment? Explain the intuition behind your answer.
3. a. Provide a definition for the natural rate of unemployment. How is your definition related to the potential output? b. What are different unemployment categories that are included in the natural level of unemployment? Provide at least one example for each category