Econ201 (1 Viewer)

[Kutay]

Hey guys i know this may be a stupid question but i have been away for a bit and just got back to uni

but in the tut there was a question that i cannot understand how to solve..

for example if given

1 / 1 + u = F(un: z)

its the natural rate of unemployment.. given the info markup costs = 5% and wage setting equation is W = P(1-u) where u is the unemployment rate.. need to find the natural rate of unemployment..

I am not sure how to use the F i know it represents a function but yeah stuck but the answer is un = 5%

regards Kutay

 

[pLuvia]

F is just a function in terms of u (unemployment rate) and z (where z is some other factors that can affect wage-setting). In exam I'm assuming if they give you an equation with u and/or z in it.

Since WS: W/P=1-u
and PS: W/P=1/(1+mu)

Since in eq'm WS=PS hence
1-u=1/(1+mu)
1-u=1/(1+0.05)
u=0.0476..

Hope that helps

 

[Kutay]

thank you so much

btw the exam is it multiple choice?

 

[pLuvia]

Think so, 20 MC questions