Suppose demand conditions in industries X and Y are identical but that productivity increases by 5% in industry X and 2% in industry Y. If nominal wages rise by 3%, we should expect that unit labor costs will O increase by the same amount in both industries, in accord with the overall increase in the average wage. O increase in industry X and decrease in industry Y. O decrease in industry X and increase in industry Y. O increase in both industries, but more in industry X than industry Y.

Suppose demand conditions in industries X and Y are identical but that productivity increases by 5% in industry X and 2% in industry Y. If nominal wages rise by 3%, we should expect that unit labor costs will O increase by the same amount in both industries, in accord with the overall increase in the average wage. O increase in industry X and decrease in industry Y. O decrease in industry X and increase in industry Y. O increase in both industries, but more in industry X than industry Y.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter6: How Statisticians Measure Inflation

Section: Chapter Questions

Problem 6TY

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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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