The wage-setting and price-setting relations for an economy are shown in the graph on the right. The initial equilibrium is at point A, and results in an unemployment rate called the natural rate of unemployment. Show how a sharp increase in the price of oil, which raises the markup price, impacts the economy. 1.) Using the 3-point curved line drawing tool, draw either the new price-setting relation curve or the new wage-setting relation curve that results from a sharp increase in oil prices. Label your curve 'PS₂' or 'WS₂' 2.) Using the point drawing tool, place a point at the new equilibrium in this market. Label your new equilibrium point 'A₂'- Carefully follow the instructions above and only draw the required objects. What does the graph tell us about the impact of a permanent increase in the price of oil on the natural rate of unemployment and real wages? O A. Both the natural rate and real wages will increase. O B. Both the natural rate and real wages will decrease. O C. The natural rate will increase and real wages will decrease. O D. The natural rate will decrease and real wages will increase. Real wage, W/P Unemployment rate, u PS WS

The wage-setting and price-setting relations for an economy are shown in the graph on the right. The initial equilibrium is at point A, and results in an unemployment rate called the natural rate of unemployment. Show how a sharp increase in the price of oil, which raises the markup price, impacts the economy. 1.) Using the 3-point curved line drawing tool, draw either the new price-setting relation curve or the new wage-setting relation curve that results from a sharp increase in oil prices. Label your curve 'PS₂' or 'WS₂' 2.) Using the point drawing tool, place a point at the new equilibrium in this market. Label your new equilibrium point 'A₂'- Carefully follow the instructions above and only draw the required objects. What does the graph tell us about the impact of a permanent increase in the price of oil on the natural rate of unemployment and real wages? O A. Both the natural rate and real wages will increase. O B. Both the natural rate and real wages will decrease. O C. The natural rate will increase and real wages will decrease. O D. The natural rate will decrease and real wages will increase. Real wage, W/P Unemployment rate, u PS WS

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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