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The WS-PS Model as the Fundamental Driver of Inflation
The fundamental cause of inflation is not simply the amount of money in circulation, but rather the economy-wide dynamics of wage and price setting, which are rooted in conflicts of interest between economic actors. The Wage-Setting/Price-Setting (WS-PS) model provides the essential framework for this analysis, offering a deeper understanding than common shorthand explanations like 'demand pull' and 'cost push'. While a major consequence of inflation is that a given amount of money buys less, this reduction in purchasing power is an effect, not the primary cause.
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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
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Interdependence of Firm Decisions and Aggregate Outcomes in the WS-PS Model
The WS-PS Equilibrium as a Nash Equilibrium
Combining WS-PS Model with Lorenz Curve for Policy Assessment
The WS-PS Model as a Model of Income Distribution
Adapting the WS-PS Model for Imported Material Costs
Limitations of the WS-PS Model
The WS-PS Model as the Fundamental Driver of Inflation
Conceptual Framework of the WS-PS Model
Integrating the WS-PS and Multiplier Models to Explain Business Cycles
In an economy where wages are determined by bargaining between firms and workers, and prices are set by firms adding a markup over their labor costs, imagine that a widespread decrease in market competition allows all firms to sustainably increase their price markup. Based on this change alone, what is the predicted impact on the economy's equilibrium?
Equilibrium Unemployment in the Wage-Price Setting Framework
Evaluating a Labor Market Policy
In an economy where equilibrium is determined by the interaction of a wage-setting relationship and a price-setting relationship, consider a scenario where a wave of mergers permanently reduces the level of competition in the product market. Assuming no other changes, what is the resulting impact on the economy's equilibrium real wage and equilibrium level of employment?
Consider an economy where wage and price levels are determined by the interplay between firms' price-setting behavior and workers' wage-setting demands. If the government significantly increases the generosity and duration of unemployment benefits, how would this policy change be represented in the standard wage-setting/price-setting framework, and what would be the resulting effect on the equilibrium level of unemployment?
Analyzing Economic Trends with the WS-PS Framework
True or False: In an economic model where equilibrium is determined by the interaction of a wage-setting curve and a price-setting curve, a new government policy that significantly increases the bargaining power of labor unions will result in a higher equilibrium real wage and a higher equilibrium level of employment.
In an economic model where firms set prices as a markup over wage costs and workers' wage demands increase with the level of employment, consider a situation where the prevailing real wage is higher than the level consistent with firms' target profit margins. Which of the following outcomes is the most likely immediate reaction from firms?
In the context of an economic model that determines the equilibrium real wage and employment level by linking the labor market and the goods market, match each component of the model to its correct description.
In a model of the aggregate economy, the equilibrium real wage and employment level are determined by the interaction of two key relationships. One relationship, the 'wage-setting curve', reflects how wages are determined by labor market conditions. The other, the 'price-setting curve', reflects how firms set prices based on their costs and the competitive environment. Match each economic event below to its most direct impact on one of these curves.
In an economic framework where firms determine prices by setting a markup over their wage costs, a decrease in the real wage level that is consistent with firms' pricing decisions necessarily implies that the share of output per worker claimed by firms as profit has increased.
In an economic framework where the equilibrium real wage and employment are determined by the interaction of a wage-setting (WS) relationship and a price-setting (PS) relationship, consider a situation where the level of employment is temporarily above the equilibrium level. Arrange the following events in the correct chronological order to show how the economy adjusts back towards equilibrium.
In an economy described by a wage-setting (WS) and price-setting (PS) framework, suppose a temporary surge in demand pushes employment above its equilibrium level. Arrange the following events in the logical sequence that describes how the economy would adjust back towards its equilibrium.
Impact of Income Tax on Labor Market Equilibrium
In the economic framework that determines the equilibrium real wage and employment level, the point where the wage-setting and price-setting curves intersect represents a stable outcome where no single economic agent (firm, employed worker, or unemployed person) has an incentive to unilaterally change their behavior. This type of stable outcome is known as a(n) ____ equilibrium.
Analyzing a Productivity Shock in the WS-PS Framework
In an economic model where the equilibrium real wage and employment are determined by the interaction of an upward-sloping wage-setting (WS) curve and a horizontal price-setting (PS) curve, consider the introduction of a new government policy that significantly increases the value and duration of unemployment benefits. Which of the following correctly describes the resulting change in the model's equilibrium?
Definition of the WS-PS Model
The WS-PS Model as a Framework for Income Distribution
Determinants of a Firm's Price Markup
Adapting the WS-PS Model for Tax Analysis using the Real Post-Tax Consumption Wage
Integrating Demand-Side (Multiplier) and Supply-Side (WS-PS) Models
Graphical Representation and Interpretation of the WS-PS Model
Analyzing Income Distribution with the Wage-Setting/Price-Setting Framework
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Analyzing an Inflationary Spiral
An economy is initially at its medium-run equilibrium. A sustained increase in aggregate demand pushes the unemployment rate below its natural level. According to the wage-setting and price-setting framework, arrange the following events in the correct causal sequence that describes the resulting upward pressure on the price level.
Critiquing Theories of Inflation
An economy is described by a wage-setting (WS) and price-setting (PS) framework and is initially in a medium-run equilibrium with stable prices. Suddenly, firms' market power increases significantly due to a wave of mergers, allowing them to charge a higher markup over their costs. According to the WS-PS model, what is the direct outcome of this change that initiates an inflationary process?
According to the wage-setting/price-setting framework, a permanent increase in workers' bargaining power, such as stronger union protections, will cause a one-time adjustment to a higher price level, after which the economy returns to a stable price equilibrium without ongoing inflation.
Explaining the Wage-Price Spiral
Match each economic event to its most direct consequence within the wage-setting/price-setting framework, as it relates to the initiation of inflationary pressure.
According to the wage-setting/price-setting model, the fundamental reason firms raise prices in an inflationary environment is to protect their ____ in the face of rising labor costs.
Policy Impact on Inflationary Pressures
Within the wage-setting (WS) and price-setting (PS) framework, an economy is initially in a medium-run equilibrium with stable prices. Which of the following scenarios is most likely to trigger a sustained, ongoing inflationary process, rather than a one-time adjustment to a new, higher price level?
Distinguishing Between the Cause and Consequence of Inflation
Applying the WS-PS Model to Inflation Analysis
Simplified Model of Firm Behavior in WS-PS Analysis
Inflation as a Conflict Over Output Shares
Integrated Framework for Analyzing Inflation