The labour market in an economy is characterised by the following equations: Wage setting: = 0.7-0.9u ре W = 0.5 P Price setting: In which W is nominal wages, pº 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 (µ) 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. u¿ < 0.22). U 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: Wage setting: = 0.7-0.9u ре W = 0.5 P Price setting: In which W is nominal wages, pº 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 (µ) 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. u¿ < 0.22). U 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.
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter7: Production Economics
Section: Chapter Questions
Problem 7E
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Question
7.
![The labour market in an economy is characterised by the following equations:
W
= 0.7-0.9u
ре
Wage setting:
W
0.5
P
Price setting:
In which W is nominal wages, pº 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:
The price mark-up (µ) for this economy is 1 (i.e. H = 1).
If actual output is below potential output, actual unemployment rate is below 0.22, (i.e. uţ< 0.22).
The equilibrium unemployment in this economy is 0.22 (i.e. uę = 0.22).
If wage setters become less responsive to changes in unemployment (e.g., from -0.9 to -0.7), the equilibrium unemployment decreases.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2ea20ba8-ef30-4b82-9f97-84d2418b8c8d%2Ffc9ee0ee-6c0f-4a0c-acd8-db67f9b42f04%2F9ikhqm_processed.png&w=3840&q=75)
Transcribed Image Text:The labour market in an economy is characterised by the following equations:
W
= 0.7-0.9u
ре
Wage setting:
W
0.5
P
Price setting:
In which W is nominal wages, pº 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:
The price mark-up (µ) for this economy is 1 (i.e. H = 1).
If actual output is below potential output, actual unemployment rate is below 0.22, (i.e. uţ< 0.22).
The equilibrium unemployment in this economy is 0.22 (i.e. uę = 0.22).
If wage setters become less responsive to changes in unemployment (e.g., from -0.9 to -0.7), the equilibrium unemployment decreases.
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