5. Suppose an economy is characterized by the equations below: Price setting: P= (1+ m\W/A) Wage setting: W = A°P'(1– u) Write down an expression for the equilibrium unemployment rate if P = P but A does not necessarily equal A. Now suppose that expectations of both prices and productivity are accurate. If the markup (m) is equal to 5%, the natural rate of unemployment is

5. Suppose an economy is characterized by the equations below: Price setting: P= (1+ m\W/A) Wage setting: W = A°P'(1– u) Write down an expression for the equilibrium unemployment rate if P = P but A does not necessarily equal A. Now suppose that expectations of both prices and productivity are accurate. If the markup (m) is equal to 5%, the natural rate of unemployment is

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 28RQ: After several years of economic growth, would you expect the unemployment in an economy to be mainly...

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After several years of economic growth, would you expect the unemployment in an economy to be mainly cyclical or mainly due to the natural rate of unemployment? Why?
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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.
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