Activity: Tracing Actor Responses to a Policy Shock in the WS-PS Model
To understand the full impact of a policy change, one must trace the sequence of actions and reactions from economic actors. This involves using an economic model, such as the one represented in Figure 2.10, to follow the logical progression of how individuals and firms adjust their behavior in response to the new policy.
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Introduction to Macroeconomics Course
Ch.2 Unemployment, wages, and inequality: Supply-side policies and institutions - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
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Intra-firm Coordination vs. Economy-Wide Inconsistency in the WS-PS Model
Adjustment Mechanism from Low Employment Disequilibrium in the WS-PS Model
Policy-Induced Shift Away from Nash Equilibrium
Divergence of Short-Run and Long-Run Policy Effects
Activity: Tracing Actor Responses to a Policy Shock in the WS-PS Model
The WS-PS Equilibrium as a Weak and Slow-Acting Magnet
Sequential Wage and Price Setting by Firms
Definition of the Bargaining Gap
Consider an economy described by the wage-setting (WS) and price-setting (PS) model. If the current level of employment is significantly above the equilibrium level, which of the following statements accurately analyzes the state of the economy at this point?
Analyzing an Economy with High Unemployment
In the WS-PS model, a disequilibrium where the wage demanded by workers exceeds the wage offered by firms is primarily caused by a failure of coordination within individual firms, such as the HR department setting wages that the marketing department cannot support with its pricing strategy.
Explaining Disequilibrium in the Labor Market
In a model where one curve represents the real wage required to motivate workers at different levels of employment (the wage-setting curve) and another curve represents the real wage that results from firms' profit-maximizing pricing decisions (the price-setting curve), match each employment scenario to its corresponding outcome.
Analyzing the Source of Economic Inconsistency
In a labor market model, when the real wage required to secure adequate worker effort is inconsistent with the real wage that results from firms' profit-maximizing price levels, the economy is in a state of ____.
An economy is currently operating at a level of employment higher than its stable equilibrium point. Arrange the following statements to describe the logical sequence of conditions that characterize this state of disequilibrium.
Analyzing a Policy Shock in the Labor Market
Analyzing Labor Market Disequilibrium
Adjustment Mechanism from High Employment Disequilibrium in the WS-PS Model
Activity: Tracing Actor Responses to a Policy Shock in the WS-PS Model
Short-Run Labor Market Effects of a New Policy
A government unexpectedly increases the generosity and duration of unemployment benefits. Arrange the following events to show the correct immediate, short-run sequence of effects in the labor market, starting from an initial equilibrium.
A government enacts a new law that significantly increases the legal and financial costs for firms to dismiss employees. Starting from a stable labor market equilibrium, what is the most direct and immediate consequence of this policy?
Short-Run Impact of Competition Policy
Learn After
Analyzing an Economic Shock with the Wage-Price Setting Model
An economy is initially in a medium-run equilibrium where the real wage workers require is equal to the real wage firms offer. The government then enacts a new policy that permanently increases the level of unemployment benefits. Assuming firms' markup over costs remains unchanged, arrange the following events to describe the logical sequence of the economy's adjustment to a new equilibrium.
Labor Market Adjustment to a Policy Change
Consider an economy initially in a medium-run equilibrium. A new government policy strengthens workers' bargaining position, causing an upward shift in the wage-setting curve. At the original level of employment, what is the immediate consequence that initiates the adjustment process toward a new equilibrium?
Product Market Competition and Labor Market Outcomes
Consider an economy in a stable, medium-run equilibrium. The government then introduces a policy that strengthens the power of labor unions, causing the wage-setting relationship to shift upwards. A union leader subsequently claims, 'This policy will lead to a permanent increase in the real wage for our members at the current level of employment.' According to the logic of the wage-setting and price-setting framework, this claim is correct.
An economy is initially in a medium-run equilibrium. A policy change then causes a permanent downward shift in the price-setting (PS) curve. Match each phase of the subsequent adjustment process with the correct description of the economic actors' behavior or the state of the labor market.
An economy is in a medium-run equilibrium. A new government policy provides a permanent subsidy to firms, reducing their non-labor costs. This causes an upward shift in the price-setting (PS) curve. At the original equilibrium level of employment, what is the fundamental inconsistency that initiates the adjustment to a new equilibrium?
Evaluating a Policy Response to a Labor Market Shock
The Wage-Price Adjustment Mechanism