Question
(a). Use the WS (wage-setting) and PS (price-setting) relations to examine the effects of the following events on the natural rate of unemployment and on
(a). Use the WS (wage-setting) and PS (price-setting) relations to examine the effects of the following events on the natural rate of unemployment and on the real wage. Be sure to explain the effects of each event on the WS and PS relations and draw a graph. (i). A reduction in unemployment benefits. (5) (ii). Less stringent anti-trust enforcement (leading to less competitive markets) (5) Answer the following questions with regard to the impact of competitive conditions and the mark-up on the real wage (W/P) (b). Calculate the real wage (W/P) if the value of the mark-up, = 0.1. (1 marks) (c). Explain why the real wage changes as the mark-up increases. (2marks) (d). Explain what the real wage paid by firms will be when all markets are perfectly competitive? 2 marks
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