(3) Derive the optimal wage setting Wit for type-i labor.

(4) Log-linearize the equation obtained in (3).

1 A New Keynesian Model Instead of considering sticky prices in a New Keynesian model as we did in class, we consider sticky wages in this problem. A representatitve household has a continuum of members indexed by ie [0,1]. Each member con- sumes 0,; and supplies a differentiated type of labor th. The representative household maximizes its life-time utility 00 10 1 1+