Answer to Question #276959 in Macroeconomics for Kaju

Question

Show the effect of stringent anti-trust legislation and higher employment

protection on natural employment through price and wage setting curves? How the

natural employment changes when Oil Price increase (add the explanation through

IS-LM-AD-AS framework.)?

Answer 1

$Solution$

Where :W/p is real wage

W/s is nominal wages/wage setting relation.

U is unemployment rate

P/s is price setting relations.

E or A is equilibrium .

An example of an anti trust legislation and higher employment protection on natural employment is european liberalization of the goods market that reduces monopoly power of existing businesses selling in EU. As graphed ;

An increase in trigent anti trust measures will increase market competition, increase the real wage and decrease the natural rate of unemployment .

Where : E is equilibrium

W/ s is wage setting relation

P/S is price setting relation.

U is unemployment rate.

A is output per worker

W/P is real wage.

Natural employment changes when Oil prices increase :increase in unemployment benefits , increases the real wage and leads to increase in natural rate of unemployment. ( u to u'n).