Task 1 The salary curve is given by: W pe = A·W(u, The price curve is given by: P = (1 + price surcharge) marginal cost P = (1 +μ). w A a) Explain how unemployment (u) and expected price level (P^e) affect nominal wages and expected real wages. Give an interpretation of the variable z ^w? b) Draw both the price and wage curve in a diagram where real wages (W/P) are on the Y-axis and unemployment (u) is on the X-axis. Explain why the real wage in this model is not dependent on unemployment [Hint: Expected price is not the same as actual price. P^e #P] c) Take the figure in b) as a starting point and explain what we mean by equilibrium and equilibrium unemployment in price and wage setting. d) How will these cases affect the equilibrium in the figure in problem c? 1) Increased unemployment benefits 2) Increased productivity

Task 1 The salary curve is given by: W pe = A·W(u, The price curve is given by: P = (1 + price surcharge) marginal cost P = (1 +μ). w A a) Explain how unemployment (u) and expected price level (P^e) affect nominal wages and expected real wages. Give an interpretation of the variable z ^w? b) Draw both the price and wage curve in a diagram where real wages (W/P) are on the Y-axis and unemployment (u) is on the X-axis. Explain why the real wage in this model is not dependent on unemployment [Hint: Expected price is not the same as actual price. P^e #P] c) Take the figure in b) as a starting point and explain what we mean by equilibrium and equilibrium unemployment in price and wage setting. d) How will these cases affect the equilibrium in the figure in problem c? 1) Increased unemployment benefits 2) Increased productivity

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...

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