Consider an economy with ...xed exchanged rates. Suppose the price-setting equation is given by

W P = (1 + m)/A

The wage-setting equation is given by

W = P e A e F (u; z)

where m is the markup, z are unemployment benefts, u is the unemployment rate, and A is productivity. Assume that A and A e are constant.

Question 2: [45 marks] Consider an economy with xed exchanged rates. Suppose the price-setting equation is given by P=(1+m)g The wage-setting equation is given by W = PEASF (u, z) where m is the markup, z are unemployment benefts, u is the unemployment rate, and A is productivity. Assume that A and A3 are constant. 1. Suppose the economy is at equilibrium where u