Consider the labour market of Novindus characterised by the following: Firms markup over cost = 8% Wage setting relation: W = P(1-u) a. Determine the real wage. (2) b. What is the natural rate of unemployment? (2) c. If the price level index is 110, determine the nominal wage to the nearest cent. (1) d. Explain intuitively in max 35 words why employers and employees are concerned with real wages rather than nominal wages. (2) e. In this model we have assumed that P = Pe. i. Why is the uncertainty in the future price level a concern for employees? – max 20 words (2) ii. In what way do people protect themselves from this risk in their employment contracts? – max 10 words. (2) f. If the markup over cost increases to 10% what will the new natural rate of unemployment be? (2) g. Explain, in max 40 words, how greater competition in the goods market can affect the natural level of unemployment. (3)

Consider the labour market of Novindus characterised by the following: Firms markup over cost = 8% Wage setting relation: W = P(1-u) a. Determine the real wage. (2) b. What is the natural rate of unemployment? (2) c. If the price level index is 110, determine the nominal wage to the nearest cent. (1) d. Explain intuitively in max 35 words why employers and employees are concerned with real wages rather than nominal wages. (2) e. In this model we have assumed that P = Pe. i. Why is the uncertainty in the future price level a concern for employees? – max 20 words (2) ii. In what way do people protect themselves from this risk in their employment contracts? – max 10 words. (2) f. If the markup over cost increases to 10% what will the new natural rate of unemployment be? (2) g. Explain, in max 40 words, how greater competition in the goods market can affect the natural level of unemployment. (3)

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter18: Introduction To Macroeconomics: Unemployment, Inflation, And Economic Fluctuations

Section: Chapter Questions

Problem 2P

See similar textbooks

Similar questions

Would you expect the natural rate of unemployment to remain the same within one country over the long run of several decades?
While unemployment is highly negatively correlated with the level of economic activity, in the real world it responds with a lag. In other wands, firms do not immediately lay off workers in response to a sales decline. They wait a while before responding. Similarly, firms do not immediately hire workers when sales pick up. What do you think accounts for the lag in response time?
The U.S. unemployment rate increased from 4.6 in July 2001 to 5.9 by June 2002. Without studying the subject in any detail, would you expect that a change of this kind is more likely to be due to cyclical unemployment or a change in the natural rate of unemployment? My?
See the labor market graph directly below. If there is a sticky wage of $20, what is the unemployment rate in this labor market? 20 on 16 16 12 A Labor Market 160 15.00% 8.57% 9.38% >0% 10.00% 16.00% Although the graph does not present complete labels, standard labor market labels apply. Note: graph is not to scale. 175 (millions)
c. Suppose that the markup of the prices of products over wage cost, z, is 10%, and that the wage-setting equation is W = P(1– 2m + z). Where m is the unemployment rate and z is the unemployment benefit/minimum wage. i. What is the real wage, as determined by the price-setting equation? ii. Solve for the natural rate of unemployment
Which one of the following statements about the bargaining power of workers and the nominal wage is INCORRECT? (a) An increase in unemployment benefits may result in an increase in the nominal wage; (b) If workers expect prices to increase, they will bargain for a higher nominal wage; (c) The easier it is to replace a worker, the more bargaining power such workers have; (d) Given that labour is the only production factor used, an increase in the bargained nominal wage will not lead to an increase in the real wage.
See the labor market graph below. If there is a sticky wage of $12, what is the unemployment rate? 20 16 12 A Labor Market 160 160 0% 8.57% 9.38% 10% 15% 16% 175 Although the graph does not present complete labels, standard labor market labels apply. Note: graph is not to scale. (millions)
10 DRAW A GRAPH. WITHOUT GRAPH THUMBS DOWN!Suppose the markup of goods prices over marginal cost is 2% and the wage-setting equation is W=P(1-u) with u being the unemployment rate.1. What is the Natural level on Unemployment?2. What is the real wage as determined by the price setting equation?3. If the markup increases to 2.5% due to an increase in the price of Oil what happens to the natural rate of employment? Explain briefly and graphically this change.
The unemployment rate is the percentage of the labor force that is unemployed, so is calculated as the number of unemployed people divided by the labor force. True O False
Use the following graph, which shows the unemployment rate on the vertical axis and the date on the horizontal axis, to answer question below. Percent of Labor Force 10% Line A 8 – 6 Line B 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 What type of unemployment is most likely measured by the differences between lines A and B? Select one: O a. Cyclical unemployment. Ob. Structural unemployment. Frictional unemployment. O d. The natural rate of unemployment.
I. Suppose that the markup of goods prices over marginal cost is 3% and that the wage-setting (WS) equation is W = P(1 – u), where u is the unemployment rate. a. What is the real wage, as determined by the price-setting (PS) equation? b. What is the natural rate of unemployment? c. Suppose that the markup of prices over costs increases to 6%. What happens to the natural rate of unemployment? Explain the logic behind your answer.
Suppose a firm’s hourly marginal product of labour is given by MPN = 0.2(200 − N), where N is the number of labour hours used in production. The amount of labour supplied by workers, NS, is given by NS = 100 + 5w, where w is the real wage. (a) Suppose the current real wage is equal to 20. How much labour will the firm want to hire? How much labour will the workers want to supply? Is there excess supply or excess demand of labour in the economy? Do you expect the real wage to go up or go down in this case? (b) Find the equation of the labour demand and calculate the equilibrium levels of real wage and full-employment. (c) If the government decides to tax the labour income, the equation of labour supply becomes NS = 100 + 5(1 − τ )w. Suppose τ = 40%. Repeat part (b). Compared to the results in (b), do the equilibrium levels of real wage and full-employment increase or decrease? Provide an intuitive explanation to your answers.