Consider the labour market of Novindus characterised by the following: Firms markup over cost = 8% Wage setting relation: W = P(1-u) a. Determine the real wage. (2) b. What is the natural rate of unemployment? (2) c. If the price level index is 110, determine the nominal wage to the nearest cent. (1)
Consider the labour market of Novindus characterised by the following:
Firms markup over cost = 8%
Wage setting relation: W = P(1-u)
a. Determine the real wage. (2)
b. What is the natural rate of
c. If the
d. Explain intuitively in max 35 words why employers and employees are concerned with
real wages rather than nominal wages. (2)
e. In this model we have assumed that P = Pe.
i. Why is the uncertainty in the future price level a concern for employees? – max 20
words (2)
ii. In what way do people protect themselves from this risk in their employment
contracts? – max 10 words. (2)
f. If the markup over cost increases to 10% what will the new natural rate of unemployment
be? (2)
g. Explain, in max 40 words, how greater competition in the goods market can affect the
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