(a) Explain the difference between the nominal wage and the real wage. Using a wage setting curve and a price setting curve illustrate how the real wage determines the equilibrium level of employment in the economy.
(a) Explain the difference between the nominal wage and the real wage. Using a wage setting curve and a
economy.
(b) On a new diagram use a wage setting curve and a price setting curve to illustrate the change to the
equilibrium level of employment if there is a reduction in the degree of competition faced by firms. Clearly
state what will occur to the real wage and the level of
(c) Suppose the economy has low aggregate demand with high unemployment. Use a new wage setting curve
and price setting curve diagram to explain how the economy could automatically adjust back to equilibrium.
Would this occur in reality? Justify your answer.
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