f01_ps7

f01_ps7 - 14.02 Fall 2001 Problem Set 7 Posted 5 November,...

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14.02 — Fall 2001 — Problem Set 7 Posted 5 November, 2001 Due 16 November, 2001 Part I: True, False or Uncertain? 20 points Explain your answer completely yet brie f y. 1. The natural rate of unemployment is una f ected by policy changes. (4 points) 2. If employment is increasing, then theunemp loymentratemustbedec l in- ing. (4 points) 3. All of the following will make the economy move along the Aggregate Supply curve (in the short run): an increase in the money supply, an increase in government spending, an increase in taxes. (4 points) 4. All of the following will shift the Aggregate Supply curve upwards: an increase in the F rm’s markup of price over costs, an increase in the ex- pected price level, an increase in the generosity of unemployment bene F ts. (4 points) 5. If equilibrium output is above its natural level, F rms will lay o f excess workers. This depresses wage demands and therefore prices, thus bringing the economy back to its natural level. (4 points) Part II: Labor Market Equilibrium. 35 Points Suppose that, in a certain economy, wages are set according to the following equation (Wage-Setting Relation): W = P (1 u ) z where W is the nominal wage, P is the price level, u is the unemployment rate and z captures all other variables a f
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This note was uploaded on 11/29/2009 for the course 14 14.02 taught by Professor Geurrieri during the Fall '09 term at MIT.

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f01_ps7 - 14.02 Fall 2001 Problem Set 7 Posted 5 November,...

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