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PROBLEM 1
Suppose that the firm's markup over costs is 6%, and the wage-setting equation is W = P(1 - u + z) , where u is the unemployment rate and z is equal to 0.03.
a. What is the real wage as determined by the price-setting equation?
b. What is the natural rate of unemployment?
PROBLEM 2
Using the WS and PS relations,graphically illustrate the effects of the following events on the natural rate of unemployment and on the real wage.
PROBLEM 3
Suppose the economy is initially operating at Yn. Now suppose the Fed conducts a monetary contraction where Msdecreases.
PROBLEM 4
Assume πte = πt-1 and the Phillips curve for the United States is given by the following:
πt- πt-1 = -1.5(ut -un). Suppose ut = 0.06, un = 0.05 and πt-1 = 0.04.
PROBLEM 5
Suppose there are two economies: A an B where utA=6% and utB= 5%
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