Practice Exam Exercises for Chapter 6 key

Practice Exam Exercises for Chapter 6 key - BEcon 301...

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BEcon 301 Practice Exercises for Chapter 6 – Answer key 1. decrease; increase. 2. large. 3. Price-setting; up (Ch. 6, p. 128) 4. The real wage stays unchanged and unemployment rate increases (ch. 6 page 127). 5. false; 6. false; 7. false; (They are typically paid more. See Ch.6 exercise 1.e. and Ch. 6, p. 120) 8. a) The wage-setting relation implies a negative relation between the real wage, (W/P), and the unemployment rate. Why? When unemployment rate is high, workers have less bargaining power and the real wage will be lower. Another argument is based on the efficiency wage theory (see chapter 6 page 121).The W = P e (1-u) also indicates that if workers expect higher price level they will demand higher nominal wages in order to prevent real wages from falling. b) The price-setting relationship indicates that an increase in the markup leads firms to increase their prices, given the wage they have to pay. Also, higher wage levels will lead to higher prices.
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Practice Exam Exercises for Chapter 6 key - BEcon 301...

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