Question: Explain why, using formulas if appropriate, nominal price rigidities imply that the average markup rate is countercyclical after aggregate demand shocks, while nominal wage rigidities

  1. Explain why, using formulas if appropriate, nominal price rigidities imply that the average markup rate is countercyclical after aggregate demand shocks, while nominal wage rigidities imply the opposite
  2. What can you say about the cyclicality of markup? Provide an answer for each of the three markup variables and using real GDP growth as your indicator of the business cycle
  3. Provide your answer as in the previous point but now use the NBER recession indicator as your measure of the business cycle.
  4. Based on your answers to points c. and d., provide your own assessment of which theory of the supply side provides a better representation of what you observe in the data. Motivate your answer

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