Graphically illustrate (using the WS and PS relations) and explain the effects of a reduction in the markup on the equilibrium real wage, the natural rate of unemployment, the natural level of employment, and the natural level of output
What will be an ideal response?
A reduction in the markup will cause firms to reduce the price given the nominal wage. This will cause the real wage based on price setting behavior to increase; this is represented by a upward shift in the PS curve. This increase in the real wage will also occur with an decrease in the unemployment rate. So, the natural rate of unemployment will decrease and the natural level of employment and, therefore, output will increase. The equilibrium real wage will also be higher.
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Economic freedom:
a. is the right to own property. b. means not having to pay taxes. c. is absent in rich countries. d. affects only poor people. e. is the ability to engage in voluntary trade.
When quantity demanded is greater than quantity supplied,
A. there is a shortage. B. price will rise until it gets back to equilibrium. C. quantity supplied will rise and quantity demanded will fall. D. all of the answers are true.