Sol. HA chapter 6.pdf - Intermediate Macroeconomics Chapter 6 The Labor Market 1 Explain how an increase in the unemployment rate will affect bargaining

Sol. HA chapter 6.pdf - Intermediate Macroeconomics Chapter...

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1 Intermediate Macroeconomics Chapter 6: The Labor Market 1) Explain how an increase in the unemployment rate will affect bargaining power and nominal wages. Answer: As the unemployment rate increases, it is more difficult for individuals to find employment at other firms. So, workers' bargaining power will fall. As bargaining power falls, the nominal wage will fall. 2) First, explain what the WS relation represents. Second, explain why it has its particular shape. Answer: The WS relation illustrates the effect of changes in the unemployment rate on the real wage implied by the wage-setting behavior of firms and workers. The WS curve (or relation) is downward sloping because as the unemployment rate increases, workers have less bargaining power so the nominal wage will decrease. This decrease in W, given P, implies that the real wage will also fall. Hence, the WS curve is downward sloping. 3) First, explain what the PS relation represents. Second, explain why it has its particular shape.
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  • Spring '18
  • CONCHA VELASCO

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