Microsoft Word - In Class Assignment-6-Nov.4 ECON-4050: In-Class Assignment-6 – Nov. 4 QUESTION-1 A) Suppose price-setting mark-up is given as: ? = where σ is the elasticity of demand with respect to...

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Microsoft Word - In Class Assignment-6-Nov.4 ECON-4050: In-Class Assignment-6 – Nov. 4 QUESTION-1 A) Suppose price-setting mark-up is given as: ? = where σ is the elasticity of demand with respect to its own demand. What is the mark-up value for a perfectly competitive firm and an imperfectly competitive firm, provide rational for each value. B) Suppose the natural rate of unemployment is given as: ? = 1 − ( ) / Where ? natural rate of unemployment, B level of technology, ? price setting mark-up, ? wage setting mark-up and b is the unemployment benefit. Interpret the impact of σ (price elasticity of demand) on the natural rate of unemployment via ? and ? . Also state that how do B (level of technology) and b (unemployment benefit) influence the natural rate of unemployment C) Short-run aggregate supply (SRAS) is given as: ? = ? + ?(? − ?) + ? where s is the supply shock. What are the shift factors of the short-run aggregate supply curve? If there is no supply shock then how would you explain the long-run aggregate supply curve from the SRAS equation? D) Define the long-run NAIRU as the natural rate of unemployment ? which will be realized when the rate of inflation as well as the rate of unemployment are constant over time, that is when ? = ? and ? = ? . Derive an equation for the long-run NAIRU. (Hint: it is equal to : ? = )