Understanding Labor Markets: Phillips Curve & Unemployment
School
University of Maryland**We aren't endorsed by this school
Course
ECON 305
Subject
Economics
Date
Dec 10, 2024
Pages
4
Uploaded by GrandTitanium13921
Dr. Martina Copelman, Spring Semester 2024ECON305 - Friday Discussion Worksheet (FDW)#6Answer the questions in the spaces provided. If you run out of room for ananswer, continue on the back of the page.Team #:Team Members(in alphabetical order):The Labor Market and the Phillips Curve1. Suppose the economy is at the medium-run equilibrium and the WS schedule is givenbyW=Pe(1−αu+z)while the PS schedule isP=(1+m)WAssume that the markup is 4%,α=0.85, andz=0.01.Compute the natural rate of unemployment,un.(Round your answer to two decimal places)%.Page 1 of 4
2. The Phillips curve is given byπt=πet+(mt+zt)−αutSuppose you learn thatπt−πet= −2%,α=1.2 and the natural rate of unemployment is4%.Compute the current level of unemployment,ut.(Round your answer to two decimal places)%.Page 2 of 4
3. Suppose there are 95.7 million people in the non-institutional civilian population in theUnited States who are out of the labor force.The unemployed are 6.3 million.Thecivilian labor force is 162.0 million.(a) Compute the participation rate.(Round your answer to one decimal place)%.(b) Compute the employment rate.(Round your answer to one decimal place)%.Page 3 of 4
4.Yourunintoafriendofyours,AverageJoe,whoclearlyhasnottakenECON305.Hedoesnotappeartospeakmucheconomicsense,buthedoesmakesometrueeconomicstatements.Amongtheoptionsbelow,circle alloptionsthatcontainonlytrueeconomicstatements.[Hint]UseyourknowledgeoftheWS-PSlabormarketdiagramandtheshiftsinitscurvestoevaluateeacheconomicstatementAverageJoemakes.A.‘Ifyouwanttoincreasethebargainingpowerofworkers,goahead,biduptheirminimumwage,butthendonotbesurprisedifthenaturalrateofunemploymentgoesup.Youknowwhatmyunclesays,right?Youreapwhatyousow.’B.‘Imean,afirmcanofferefficiencywages,Iamnotsayingthatitcannot,butsupposeunemploymentisveryhigh,thenefficiencywagetheoriessuggestthatafirmislesswillingtoofferawagemuchlargerthanthereservationwage,whichisperhapsabitcounterintuitive,don’tyouthink?’C.‘Higherunemploymentinsuranceisdefinitelynotthekindofbonanzamymumthinksitis.Itincreasesthenaturalrateofunemploymentandmakestherealwageplummet.It’sakindofadoublewhammy,ifyouaskme.’D.‘Youknow,alowermarkupcannotincreasetherealwagebecausewagesettingdoesnotdependonthemarkup,butcanittrulyreducethenaturalrateofun-employment?Well,yes,Iguessso,nowthatIthinkaboutit.AlowermarkupdoesreducethenaturalrateofunemploymentbutleavesWunaffected.’Page 4 of 4