ECON 504, Advanced Macroeconomics, Fall 2015
Arslan Razmi
Problem Set 2 (due on Oct. 8, 2015)
1. Do problems 4 and 8 from chapter 6 of the textbook (pp. 129-30).
2. In chapter 6, suppose the mark-up rate is a positive function of the level of output (Y). Re-write the
price-setting equation and derive its slope mathematically. Intuitively explain the slope compared
to the equation given in the book. Next assume that:
(1) worker bargaining power increases due to more organized unions. Explain, graphically and
intuitively, the effect on unemployment and real wages.
(2) international trade lowers the ability of firms to charge mark-ups (at any given level of output).
Explain, graphically and intuitively, the effect on unemployment and real wages.
3. Do problems 2, 3, 4, and 11 from chapter 7 of the textbook (pp. 158-9).
4. Do problems 2, 3, 4, 5, 7, and 10, from chapter 8 of the textbook (pp. 180-82).
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