Author Question: Explain what effect a reduction in productivity has on wage setting behavior, price setting ... (Read 321 times)

pepyto · **on:** Jun 30, 2018

Explain what effect a reduction in productivity has on wage setting behavior, price setting behavior, the equilibrium real wage, the natural rate of unemployment, and the natural level of output.

What will be an ideal response?

Question 2

Suppose a one-year discount bond offers to pay 100 in one year and currently sells for 99. Given this information, we know that the interest rate on the bond is

A) 11.1.
B) 10.
C) 5.3.
D) 9.9.

dmurph1496 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

A reduction in A will cause a reduction in the real wage based on WS behavior; therefore, the WS curve shifts down by the change in A. The reduction in A increases the marginal cost of an additional unit of output so firms will raise the price. Hence, the real wage based on PS behavior will fall by A and the PS curve shifts down by A. Given the size of the shifts in the WS and PS curves, u does not change; however, the real wage does fall.

Answer to Question 2

A