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Structural Unemployment in the WS-PS Model
Adjustment Mechanism from High Employment Disequilibrium in the WS-PS Model
Adjustment Mechanism from Low Employment Disequilibrium in the WS-PS Model
Relationship Between Unemployment and Inflation in the WS-PS Model
In the WS-PS model, inflation is triggered whenever the wage on the wage-setting (WS) curve is higher than the wage on the price-setting (PS) curve. This disequilibrium, which can be initiated by either demand or supply shocks, creates a positive bargaining gap and leads to a cycle of rising wages and prices. Conversely, when the wage on the WS curve is below that on the PS curve, there is downward pressure on wages and prices, potentially leading to deflation.
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Economics
Economy
Introduction to Macroeconomics Course
Ch.4 Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
CORE Econ
Social Science
Empirical Science
Science
Ch.5 Macroeconomic policy: Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
Ch.7 Macroeconomic policy in the global economy - The Economy 2.0 Macroeconomics @ CORE Econ
Introduction to Microeconomics Course
Related
Involuntary Nature of Unemployment at the WS-PS Equilibrium
Relationship Between Unemployment and Inflation in the WS-PS Model
Non-Accelerating Inflation Rate of Unemployment (NAIRU)
A government introduces new regulations that significantly increase the level of competition among firms in the product market. Within the wage-setting (WS) and price-setting (PS) framework, what is the predicted impact on the structural rate of unemployment and the equilibrium real wage?
Determinants of Structural Unemployment in the WS-PS Model
Impact of Labor Market Policy on Structural Unemployment
Within the wage-setting (WS) and price-setting (PS) framework, a sustained increase in consumer spending that boosts aggregate demand will lead to a permanent reduction in the structural rate of unemployment.
Impact of Social Policy on Equilibrium Unemployment
Match each economic event to its most direct impact within the wage-setting (WS) and price-setting (PS) framework, and the resulting effect on the structural rate of unemployment.
In the labor market model, the level of unemployment that exists when the real wage required to motivate workers is equal to the real wage that results from firms' pricing decisions is known as ________ unemployment.
An economy is initially in a stable, long-run equilibrium. A new government policy is enacted that permanently increases the generosity of unemployment insurance benefits. Arrange the following events in the correct chronological order to show how the economy adjusts to a new long-run equilibrium.
Evaluating Competing Policies to Reduce Equilibrium Unemployment
Evaluating a Policy's Impact on Equilibrium Unemployment
Figure 1.24: The WS-PS Model, Case 1: Employment Above Equilibrium
Figure 4.6: Causal Chain from Low Unemployment to Inflation
Relationship Between Unemployment and Inflation in the WS-PS Model
Disequilibrium Point B in the WS-PS Model
Inflationary Process in a Boom with Positive Expected Inflation
Persistence of the Bargaining Gap
Mechanism of Accelerating Inflation from Low Unemployment and Positive Expectations
In an economic model where firms set prices as a markup over their labor costs and must pay a certain wage to motivate their employees, what is the core reason that a period of high employment (above the stable equilibrium level) leads to inflation?
Analyzing an Overheating Economy
An economy is experiencing a period of employment that is significantly above its stable, long-run level. This situation creates a conflict between the wage claims of workers and the profit goals of firms. Arrange the following events in the correct causal sequence that describes how this conflict leads to inflation.
Firm Behavior and Inflation in a High-Employment Economy
Evaluating a Firm's Strategy in a High-Employment Economy
Consider an economy where firms set prices as a markup over their costs and wages are determined by the level of employment. If employment rises to a level where it is difficult for firms to find and retain workers, the resulting price increases are primarily a strategic move by firms to expand their profit margins in response to strong consumer demand.
In an economy with employment above its stable equilibrium, a conflict arises between workers' wage demands and firms' profit targets, leading to inflation. Match each component of this adjustment process with its correct description.
In a high-employment economy, firms raise nominal wages to retain workers and then increase prices to protect their profit margins. This cyclical process, driven by conflicting claims on output between workers and owners, is known as __________.
Assessing a Profit Margin Strategy in a Tight Labor Market
Evaluating a Policy Response to Inflation
Imagine an economy where a boom in consumer spending causes the unemployment rate to drop to a very low level, well below what is considered sustainable in the long run. Based on the economic model of conflicting claims over output between workers and firms, what is the most likely sequence of events to follow?
An economy is experiencing a period of very high employment, pushing it beyond its stable equilibrium point. Arrange the following events into the logical sequence that describes the resulting inflationary adjustment process.
Analyzing Inflation in a High-Employment Scenario
The Inherent Conflict in an Overheating Economy
Explaining the Wage-Price Spiral
In an economy where employment is well above its long-run stable level, a dynamic adjustment process begins. Match each cause in this process with its most direct and immediate effect.
In an economic model where inflation arises from conflicting claims between workers and firms, consider a situation where employment is pushed significantly above its stable, long-run level. According to the adjustment mechanism in this model, the resulting wage-price spiral is initially triggered by firms' marketing departments proactively raising prices to expand their profit margins in response to high consumer demand.
In an economy where employment is pushed above its long-run sustainable level, an inflationary process begins. What is the fundamental inconsistency that drives this wage-price spiral?
In a booming economy with very low unemployment, firms find themselves raising nominal wages to attract and retain employees. Simultaneously, consumer prices are increasing across the board. Which of the following statements best analyzes the fundamental economic tension driving this simultaneous rise in wages and prices?
An economic commentator observes a period of very low unemployment and rising inflation. They argue: "This inflation is a clear sign of corporate greed. Firms are using the strong economy as an excuse to excessively mark up their prices and expand their profit margins." Based on the economic model of wage and price determination, which of the following provides the most accurate evaluation of this commentator's argument?
Figure 1.25: The WS-PS Model, Case 2: Employment Below Equilibrium
Relationship Between Unemployment and Inflation in the WS-PS Model
Learn After
The WS-PS Model as the Foundation for the Phillips Curve
Wage Inflation
Wage and Price Setting with a Negative Bargaining Gap
Canadian Data Supporting the Phillips Curve Relationship
In an economic model, a wage-setting (WS) curve shows the real wage necessary at each level of employment to secure adequate worker effort, while a price-setting (PS) curve shows the real wage paid when firms choose their profit-maximizing price. Assume the economy is initially at an employment level where the WS and PS curves intersect, resulting in stable prices. Now, suppose a positive demand shock reduces the unemployment rate, moving the economy to a higher level of employment. What is the most likely chain of events that follows?
The Source of Price Instability
Labor Market Dynamics and Price Stability
An economy is experiencing a recession, with the unemployment rate significantly above the level where the wage-setting and price-setting curves intersect. Arrange the following events to describe the model's predicted adjustment process that pushes the economy toward a new equilibrium with downward pressure on prices.
In an economic framework where wages are determined by a wage-setting curve and prices by a price-setting curve, a period of rising prices (inflation) is initiated by firms' decisions to increase their profit margins above the level consistent with the price-setting curve.
In a labor market model where a wage-setting (WS) curve represents the real wage workers require and a price-setting (PS) curve represents the real wage firms offer, match each labor market condition to its most likely outcome for the general price level.
Analyzing the Inflationary Impact of Labor Market Policy
In a labor market model where one curve represents the real wage required to motivate workers at each level of employment and another represents the real wage firms can offer while maximizing profits, a situation where the required wage is higher than the offered wage creates a positive __________, leading to upward pressure on both wages and prices.
In an economy where wages and prices are determined by the interaction of a wage-setting (WS) curve and a price-setting (PS) curve, consider the impact of a new government policy that significantly reduces the bargaining power of labor unions. Assuming the economy was initially in a stable-price equilibrium, what is the most likely immediate consequence of this policy on the labor market and the general price level?
Analyzing Labor Market Imbalances and Price Level Changes
An economy experiences a sudden increase in aggregate demand, pushing the employment level significantly above the point where the wage-setting (WS) and price-setting (PS) curves intersect. Which of the following best analyzes the mechanism that leads to inflation in this scenario?
Analyzing Labor Market Dynamics in a Recession
In a labor market model where one curve represents the real wage required to motivate workers at different employment levels and another curve represents the real wage firms can offer while maintaining their target profit margin, a situation where employment is below the intersection of these two curves will lead to a wage-price spiral and rising inflation.
An economy experiences a boom, causing the level of employment to rise above its long-run equilibrium. This creates a conflict over the distribution of output between workers and firms. Arrange the following events in the correct causal sequence that describes the resulting wage-price spiral.
The Bargaining Gap and Inflation
Evaluating Anti-Inflationary Labor Market Policies
In a model of the labor market, the interaction between the wage workers require and the wage firms can afford to pay determines the pressure on inflation. Match each described labor market condition to its most likely macroeconomic outcome.
In a labor market model where one curve represents the real wage workers demand at each level of employment and another represents the real wage firms pay when setting prices to maximize profits, a situation where employment is high enough that the workers' demanded wage is above the firms' offered wage creates a positive bargaining gap, which in turn leads to ________ pressure on wages and prices.
An economic advisor claims, 'During a period of very low unemployment, rising nominal wages are not inflationary, provided that firms maintain their existing profit margins.' Based on a model where inflation arises from the conflicting claims of workers and firms over output, which of the following provides the best evaluation of this claim?
Analyzing a Supply-Side Shock's Impact on Inflation