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Impose the specific functional form (, ) = 1 + . a) Write down and use the wage determination and price determination equations to derive
Impose the specific functional form (, ) = 1 + . a) Write down and use the wage determination and price determination equations to derive an equation that describes the relationship between the price level and the unemployment rate. (4 Marks) b) Introduce the elements of times and use the result of Part a) to demonstrate how to derive = ! + ( + ) . Explain why the signs in the equation hold in economics. (6 Marks) c) Use the result of Part b) to derive the natural rate of unemployment ". (4 Marks) d) Combine the results of Part b) and c) to demonstrate how to derive the equation that describes the relationships between the inflation rate difference and the unemployment rate difference. Interpret it briefly. (6 Marks) Question Two (10 Marks) Interactions between Output and Capital Consider a closed economy, a fixed labor force, and a fixed level of technology. Explain clearly how to find a steady state equilibrium in words and equations. Include a diagram
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