The labour market in an economy is characterised by the following equations: W = 0.7-0.9u ре Wage setting: Price setting: W = 0.5 In which W is nominal wages, pe and P are expected nominal prices and nominal prices, respectively, u is level of unemployment. Consider a linear production function for firms such that Q = N, i.e., production for firms (Q) depends only on the number of employees (N). Considering this information, which of the following statements are CORRECT: O The price mark-up (u) for this economy is 1 (i.e. µ = 1). O If actual output is below potential output, actual unemployment rate is below 0.22, (i.e. uț< 0.22). The equilibrium unemployment in this economy is 0.22 (i.e. ue = 0.22). O If wage setters become less responsive to changes in unemployment (e.g., from -0.9 to -0.7), the equilibrium unemployment decreases.

The labour market in an economy is characterised by the following equations: W = 0.7-0.9u ре Wage setting: Price setting: W = 0.5 In which W is nominal wages, pe and P are expected nominal prices and nominal prices, respectively, u is level of unemployment. Consider a linear production function for firms such that Q = N, i.e., production for firms (Q) depends only on the number of employees (N). Considering this information, which of the following statements are CORRECT: O The price mark-up (u) for this economy is 1 (i.e. µ = 1). O If actual output is below potential output, actual unemployment rate is below 0.22, (i.e. uț< 0.22). The equilibrium unemployment in this economy is 0.22 (i.e. ue = 0.22). O If wage setters become less responsive to changes in unemployment (e.g., from -0.9 to -0.7), the equilibrium unemployment decreases.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter8: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 4WNG

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