Suppose the labour market is initially in equilibrium. Now consider that the government raises income tax rates. Answer the following in the context of the wage-setting-pricing model: (a) What happens to unemployment in the short run? Explain and illustrate on a diagram of the wage-setting-pricing model.

Suppose the labour market is initially in equilibrium. Now consider that the government raises income tax rates. Answer the following in the context of the wage-setting-pricing model: (a) What happens to unemployment in the short run? Explain and illustrate on a diagram of the wage-setting-pricing model.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter12: The Partial Equilibrium Competitive Model

Section: Chapter Questions

Problem 12.12P

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