Restrictions on the parameters

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Reference no: EM136423

Q1. A nation has a population of 260 million people. Of these, 60 million are retired, in the military, in institutions, or under 16 years old. There are 188 million who are employed and 12 million who are unemployed. What is the unemployment rate?

Q2. Suppose the wage-setting equation is given by W = Pe(a0-a1*u + a2*z); where a0, a1 and a2 are positive parameters.
The price-setting equation is P = (1 + m) W:
(1) What would be the natural level of unemployment Yn? How does it depend on a0, a1 and a2? What's the economic intuition?
(2) How does the natural rate of unemployment depend on a0, a1, a2 and z?
(3) What is the equation for the AS curve? What restrictions on the parameters do we need to ensure that AS curve has a positive and nite slope? What are the economic intuitions for these restrictions?

Reference no: EM136423

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