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The document discusses various economic concepts including the wage-setting and price-setting equations, the natural rate of unemployment, and the effects of changes in markup and unemployment benefits on real wages and unemployment rates. It also covers the impact of fiscal and monetary policies on economic equilibrium, inflation, and the Phillips Curve. Additionally, it addresses the differences between the original and modified Phillips Curve, NAIRU, and the implications of antitrust legislation on the labor market.

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Sarah mehta
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© © All Rights Reserved
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8 views

problem set

The document discusses various economic concepts including the wage-setting and price-setting equations, the natural rate of unemployment, and the effects of changes in markup and unemployment benefits on real wages and unemployment rates. It also covers the impact of fiscal and monetary policies on economic equilibrium, inflation, and the Phillips Curve. Additionally, it addresses the differences between the original and modified Phillips Curve, NAIRU, and the implications of antitrust legislation on the labor market.

Uploaded by

Sarah mehta
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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CHAPTER-7,8,9

The wage-setting equation is W/P=1−u+z, and the price-setting equation is W/P=1/(1+m):

• (a) Derive the natural rate of unemployment (u) by equating the wage-setting and price-
setting equations.

• (b) If z=0.02 (factors affecting wage-setting) and m=0.10 (markup), calculate unemployment.

• (c) Analyze how an increase in m from 0.10 to 0.15 affects the natural rate of unemployment.

Que) Given the price-setting equation P=(1+m)W and wage-setting behavior W/P=F(u,z)

• (a) If the markup m is 0.2 and z is fixed, calculate the equilibrium real wage for an
unemployment rate of 5%.

• (b) Show numerically how the real wage changes as unemployment increases to 8%.

• (c) Discuss the implications for worker bargaining power and firm costs.

Que4)

(a) Sketch the wage-setting (WS) and price-setting (PS) curves on the real wage-unemployment
graph.

(b) Illustrate how an increase in z (e.g., more generous unemployment benefits) shifts the WS curve
and analyze its impact on the natural rate of unemployment.

Que5)

(a) Show graphically how a rise in markup m shifts the price-setting curve downward.

(b) Explain how this affects the real wage, unemployment, and the natural rate.

Que)

(a) Graphically illustrate how a central bank can reduce inflation using tight monetary policy.

(b) Show the short-term movement along the Phillips Curve and the long-term return to
un(unemployment).
Que4)

After a prolonged recession, the natural rate of unemployment rises from 5% to 6.5%:

• (a) Using the Phillips Curve formula, calculate the inflation rate when unemployment is 7%
and expected inflation is 2%.

• (b) Explain how the increase in un changes the inflation-unemployment trade-off.

Que)

(a) Begin with an IS-LM equilibrium at potential output Y^n.

(b) Show the effect of a contractionary fiscal policy on the IS curve and the short-run adjustment in
the PC curve.

(c) Illustrate how monetary policy can offset the output effects.

Que)

(a) Illustrate an IS-LM equilibrium and PC curve before a supply shock.

(b) Show how a negative supply shock (e.g., rising energy prices) shifts the PC curve.

(c) Use the graph to analyze the trade-offs between stabilizing inflation and output.

Que)

(a) Graph an IS-LM-PC equilibrium where monetary policy is constrained by the ZLB.

(b) Show how fiscal policy shifts the IS curve and reduces the output gap.

(c) Discuss why fiscal policy is critical in this scenario.

Que.) Difference between original phillips curve and modified phillips curve.

Que.) NAIRU - what is it? difference from actual rate of unemployment?

Que.) What are the effects of an increase in the markup equilibrium real wage, natural rate of
unemployment, natural level of employment, natural level of output and so on

Que.) What is the relationship between unemployment benefits and unemployment rate

Que.) What is the effect of more stringent or less stringent antitrust legislations on labour market
equilibrium.

Que.) Show the difference between deflation and disinflation

Que.) What is the effect of change in price of oil using the IS-LM-PC model

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