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# tutorial7engl - PROF DR MICHAEL FUNKE Hamburg 25 November...

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P ROF . D R . M ICHAEL F UNKE Hamburg, 25. November 2009 D IPL . V.W H AO Y U Tutorial 7 „Macroeconomics“ (Winter 2009/10) 1. The effects of long-term unemployment at the natural rate of unemployment. Assume the price setting equation is described in the following equation: 1 10 . 1 W P = + The wage setting relation is 1( 0 . 5 ) SL W uu P =− + Here u S and u L represent short-run and long-run unemployment rate of the labor force. Further assume that, the proportion of long-run unemployment rate to the total unemployment rate is β . That is, L = and ( ) 1 S . a) What type of unemployment has, under the wage-setting equation, a greater impact on wages, the short-term or long-term unemployment? Explain your answer. b) Please derive the natural unemployment rate. (Hint: substitute L = and ( ) 1 S in the wage setting relation. The natural unemployment rate would depend on parameter ). c) Calculate the natural unemployment rate, when =0,0; 0.4, and 0.8 respectively. Explain your calculation result.

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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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tutorial7engl - PROF DR MICHAEL FUNKE Hamburg 25 November...

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