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In: Economics

Suppose that the sensitivity of wages to unemployment is 2. Let the mark-ups in the economy...

Suppose that the sensitivity of wages to unemployment is 2. Let the mark-ups in the economy be equal to 0.15, while the catch-all term equals 0.03. Finally, assume that the population in the economy amounts to 5000.

What is the size of potential output in the economy?

Solutions

Expert Solution

To find the size of the potential output

Size of potential output = (Wages to unemployement + mark up in the economy + catch all term) x population in the economy.

= (2+0.15+0.03) x 5000

= 2.18 x 5000

= 10,900.

Hence, the size of potential output in the economy is 10,900.

Rahul Sunny answered 2 years ago
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