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Engltut5 - P ROF . D R . M ICHAEL F UNKE Hamburg, 11....

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Unformatted text preview: P ROF . D R . M ICHAEL F UNKE Hamburg, 11. November 2010 M ASTER . V.W H AO Y U Tutorial 5 „Macroeconomics“ (Winter 2010/11) 1. Supply shocks and wage flexibility. Suppose that the Phillips curve is given by ( ) n t t t u u − − = − − α π π 1 Where ( ) α z u u n + = Recall that this Phillips curve was derived in this chapter under the assumption that the wage bargaining equation took the form ( ) z u P W t e + − = α 1 We can think of α as a measure of wage flexibility – the higher is α , the greater is the response of the wage to a change in the unemployment rate, t u α . a. Suppose and z=0.03. What is the natural rate of unemployment if 03 . = u α = 1? if α = 2? What is the relation between α and the natural rate of unemployment? Interpret your answer. b. In Chapter 9, the text suggested that a reduction in the bargaining power of workers may have something to do with the economy’s relative mild response to the increases in oil prices in the past few years as compared to the economy’s response to increases...
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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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Engltut5 - P ROF . D R . M ICHAEL F UNKE Hamburg, 11....

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