Topic 4 - Labour market and the Phillips curve

Question 1

what short run policies can be used ti affect demand in the economy

Answer 1

Monetary - adjust interest rates - shifts the LM curve
fiscal - change taxes or government spending - shifts the IS curve

Question 2

how long do short run policies take

Answer 2

18-24 months

Question 3

what are examples of long term policies

Answer 3

reform of labour market - z - labour bargaining power

m - competition between firms (mark-up)

Question 4

What is the production function

Answer 4

Y = N
output = number employed

Question 5

what equation do we get when we differentiate the production function

Answer 5

w/p = mpl
real wage = marginal product of labour

Question 6

what equation demonstrates that many goods markets and not competitive and charge higher than their markup

Answer 6

P = (1 + m)W

Question 7

what is the equation for real wages in terms of the mark up

Answer 7

W/p = 1/1 + m

Question 8

what does an increase in m do to real wages

Answer 8

decreases real wages

Question 9

what was correlated with the US recessions of 1973-75, 1980 and 1990-91

Answer 9

Rising global oil prices

Question 10

what happens to the mark up as the degree of competition in an economy increases

Answer 10

firms will not have the market power to charge high mark ups
will only be able to charge low price mark ups above original cost