Please answer ONLY V,Vi,Vii and Viii 1. The natural rate of unemployment.(WD) Wage-determination equation:(PD) Price-determination equation:W = P° F(u,z)P = (1+m) Wi.Using WD and PD, derive unemployment (u) as a function of prices, expectedprices, markups and z, assuming F(u,z) = z - au.What is the relationship between prices and expected prices when theunemployment rate is at its natural level?Use the condition from (ii) to solve for the natural rate of unemployment (un).Let Lrepresent the size of the labor force, and N the number of people employed.Using the production function, Y = N, write potential output (Y.) as a function ofii.ii.iv.Plot WD and PD on a graph, where the vertical axis is given by nominal wages(W), and the horizontal axis is given by the unemployment rate (u), and identifythe natural rate of unemployment.Using your graph from (v), demonstrate how an increase in prices shifts PD. Labelthis curve PD'.Is the unemployment rate corresponding to the intersection of WD and PD' thevi.vii.new natural rate of unemployment? Explain.If expectations about prices are based on past values of prices, P > pecorresponds to rising prices (i.e., inflation). Suppose P > pº. Is the short-runvii.unemployment rate implied by your equation from (i) greater than or less thanthe natural rate of unemployment?

The purpose is to analysis, the labor market is often described by the interaction of labor demand…

vi. vii. viii. Plot WD and PD on a graph, where the vertical axis is given by nominal wages (W), and the horizontal axis is given by the unemployment rate (u), and identify the natural rate of unemployment. Using your graph from (v), demonstrate how an increase in prices shifts PD. Label this curve PD'. Is the unemployment rate corresponding to the intersection of WD and PD' the new natural rate of unemployment? Explain. If expectations about prices are based on past values of prices, P > pe corresponds to rising prices (i.e., inflation). Suppose P > pe. Is the short-run unemployment rate implied by your equation from (i) greater than or less than the natural rate of unemployment?

vi. vii. viii. Plot WD and PD on a graph, where the vertical axis is given by nominal wages (W), and the horizontal axis is given by the unemployment rate (u), and identify the natural rate of unemployment. Using your graph from (v), demonstrate how an increase in prices shifts PD. Label this curve PD'. Is the unemployment rate corresponding to the intersection of WD and PD' the new natural rate of unemployment? Explain. If expectations about prices are based on past values of prices, P > pe corresponds to rising prices (i.e., inflation). Suppose P > pe. Is the short-run unemployment rate implied by your equation from (i) greater than or less than the natural rate of unemployment?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Please answer ONLY V,Vi,Vii and Viii

1. The natural rate of unemployment.
(WD) Wage-determination equation:
(PD) Price-determination equation:
W = P° F(u,z)
P = (1+m) W
i.
Using WD and PD, derive unemployment (u) as a function of prices, expected
prices, markups and z, assuming F(u,z) = z - au.
What is the relationship between prices and expected prices when the
unemployment rate is at its natural level?
Use the condition from (ii) to solve for the natural rate of unemployment (un).
Let Lrepresent the size of the labor force, and N the number of people employed.
Using the production function, Y = N, write potential output (Y.) as a function of
ii.
ii.
iv.
Plot WD and PD on a graph, where the vertical axis is given by nominal wages
(W), and the horizontal axis is given by the unemployment rate (u), and identify
the natural rate of unemployment.
Using your graph from (v), demonstrate how an increase in prices shifts PD. Label
this curve PD'.
Is the unemployment rate corresponding to the intersection of WD and PD' the
vi.
vii.
new natural rate of unemployment? Explain.
If expectations about prices are based on past values of prices, P > pe
corresponds to rising prices (i.e., inflation). Suppose P > pº. Is the short-run
vii.
unemployment rate implied by your equation from (i) greater than or less than
the natural rate of unemployment?

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