Macro worksheet 3.pdf - Questions Week 3 Rahul Nath 1 Use the WS-PS model to examine the effect on(i Involuntary Unemployment(ii Voluntary Employment

Macro worksheet 3.pdf - Questions Week 3 Rahul Nath 1 Use...

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Questions - Week 3 Rahul Nath 1. Use the WS-PS model to examine the effect on (i) Involuntary Unemploy- ment, (ii) Voluntary Employment, and (iii) Total Unemployment in the following cases: (a) A positive productivity shock (b) An increase in producer market power (c) The abolition of employment protections How do your answers change when the WS and PS curves diverge from labour supply and labour demand respectively. 2. In the Phillips Curve equation, π t = π t - 1 + α ( y t - y e ) + u t (1) how is the slope α determined? What does this slope parameter represent? In the lecture notes it is claimed that the WS-PS curve ensures that α > 0. Provide the analysis that supports this claim. 3. Suppose the Phillips Curve takes the following form, π t = π t - 1 + α ( y t - y e ) + u t (2) where u t is known as a cost-push shock. There is temporary cost-push shock in period t , i.e. u t > 0, which then reverts to zero from period t + 1 onwards. Use the short-run Phillips Curve, and VPC to analyse the dynamics for this economy. Provide intuition for your analysis using the
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