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EPPE6024L4.doc - CHAPTER 4: LABOUR MARKET AND SUPPLY-SIDE...

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CHAPTER 4: LABOUR MARKET AND SUPPLY-SIDE POLICIESIntroductionThis chapter-explains how supply-side policies andlabour market institutions affect the wage orprice-setting curve and, hence, equilibrium unemployment.-focuses on factors that can shift the WS curve and thePScurve.-takes a closer look at the way in which the institutions of wage setting can affectequilibrium unemployment.-explain the way in which a period of sustained unemployment due to weakaggregate demand can feed back to the supply side of the economy and result in arise in equilibrium unemployment.1. Supply-side structures, policies, and shock-we refer to any shift in the WS or PS curve as a supply-side shift or a supply-sideshock-downward shift of the WS curve (union power is weakened by a new legislation)-supply shockoWSWS’oVPCVPC’oPC shift as well to PC(I=4,y’e)
oAZ straight jump is unlikely (because lags in response and adjustment)oInstead ABInflation falls atye

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