Suppose that the mark-up of goods prices over marginal cost is 20%, and the unemployment benefits...

 

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Suppose that the mark-up of goods prices over marginal cost is 20%, and the unemployment benefits level is 10%. That the wage-setting equation is: (1 + m)W = P, F(z,u)=1-4u+2z where u is the unemployment rate. a. What is the real wage, as determined by the price-setting equation? b. What is the natural rate of unemployment (give your answer in % ans round to 0.1)? c. Suppose that the unemployment benefits/minimum wage increase to 5%. What happens to the natural rate of unemployment? What would be the solution if mark-ups will fall to 5%? Explain the logic behind your answer. Draw a proper graph for each cases. d. What would happened when wage-setting relation would looks like: W/P = (1 - 2u +2 z). Suppose that the mark-up of goods prices over marginal cost is 20%, and the unemployment benefits level is 10%. That the wage-setting equation is: (1 + m)W = P, F(z,u)=1-4u+2z where u is the unemployment rate. a. What is the real wage, as determined by the price-setting equation? b. What is the natural rate of unemployment (give your answer in % ans round to 0.1)? c. Suppose that the unemployment benefits/minimum wage increase to 5%. What happens to the natural rate of unemployment? What would be the solution if mark-ups will fall to 5%? Explain the logic behind your answer. Draw a proper graph for each cases. d. What would happened when wage-setting relation would looks like: W/P = (1 - 2u +2 z).

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a To determine the real wage we need to solve the pricesetting equation 1 mW P where m is the markup and P is the price Given that the markup is 20 m ... View the full answer