PROBLEMSET6

PROBLEMSET6 - PROBLEM SET 6 Problems for Chapter 6 1. Using...

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PROBLEM SET 6 Problems for Chapter 6 1. Using the wage equation (equation 6.1 in the text), briefly explain how each of the following events will affect the nominal wage (W). a. A reduction in P e . b. A reduction in the unemployment rate (U). c. A reduction in unemployment insurance. 2. Briefly explain how each of the following events will affect the price set by firms, according to the price-setting equation. a. Increased merger activity causes markets to become less competitive. b. Increased anti-trust legislation leads to increased competition among firms in markets. c. A reduction in the nominal wage. 3. This question focuses on the wage-setting (WS) equation. a. Briefly explain what effect a reduction in the unemployment rate will have on the real wage (W/P). b. Why is the WS curve downward sloping graphically? c. What effect will a reduction in unemployment benefits have on the WS curve graphically? d. What effect will an increase in the price level have on the WS curve graphically? ( HINT : Think about what an increase in P will do to W [nominal wage] and therefore to W/P [real wage]). 4. For each of the following values of the markup, m (μ in the text), calculate the real wage (W/P). a. m = .1 , .2 , .3 , and .4 . b. What happens to the real wage as m increases? c. Explain why the real wage changes as m increases. 5. Suppose that all markets are perfectly competitive. a. What is the value of m (μ in the text) when perfect competition exists?

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This note was uploaded on 12/21/2011 for the course ECON 3014 taught by Professor Michaelshaw during the Spring '11 term at HKU.

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PROBLEMSET6 - PROBLEM SET 6 Problems for Chapter 6 1. Using...

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