Imagine that the markup practiced by firms in an economy is 5% The degree of the protection of employees is 0.1 and assume that the slope of the wage setting curve is -0.7 If production in the country's firms happens with constant returns to scale, what is going to be the coguation of the chert

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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1. Imagine that the markup practiced by firms in an economy is 5%
The degree of the protection of employees is 0.1 and assume that the slope of the
wage setting curve is -0.7
If production in the country's firms happens with constant returns to scale, what is
going to be the equation of the short-run aggregate supply curve in terms of
inflation?
2. Using the information from the exercise above, calculate the effect on inflation of a
one percentage point decrease in unemployment, assuming that before this
decrease, inflation is equal to expected inflation. Be very-very precise with your final
answer, please (i.e. define clearly if the change is in terms of percentage-relative
change or in terms of percentage points). Think twice before you answer. Please
note that you do not need to have answered question 1 to be able to answer this.
Transcribed Image Text:1. Imagine that the markup practiced by firms in an economy is 5% The degree of the protection of employees is 0.1 and assume that the slope of the wage setting curve is -0.7 If production in the country's firms happens with constant returns to scale, what is going to be the equation of the short-run aggregate supply curve in terms of inflation? 2. Using the information from the exercise above, calculate the effect on inflation of a one percentage point decrease in unemployment, assuming that before this decrease, inflation is equal to expected inflation. Be very-very precise with your final answer, please (i.e. define clearly if the change is in terms of percentage-relative change or in terms of percentage points). Think twice before you answer. Please note that you do not need to have answered question 1 to be able to answer this.
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