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Unformatted text preview: b. each 1% drop in u causes inflation to increase by 1.5%; c. As u falls the inflation rate increases; 11. An increase in oil prices will cause an increase in the markup and cause the PS curve to shift down. This will cause an increase in the natural unemployment rate and a reduction in the equilibrium real wage. If, however, workers accept the drop in the wage we will observe a downward shift in the WS curve; this would be represented formally as a drop in the catchall variable z. In this case, the equilibrium real wage will fall, but there will be no change in the natural rate of unemployment. 1...
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This note was uploaded on 12/22/2011 for the course MACROECON 301 taught by Professor Christinanagy during the Fall '09 term at University of Washington.
- Fall '09