For this problem think about wagesetting and pricesetting in

For this problem think about wage-setting and price-setting, incorporating expectations about productivity (as in Chapter 13). Suppose an economy experiences technological change at rate LaTeX: g_A g A , depreciation at rate LaTeX: \\delta ? , and population growth at rate LaTeX: g_N g N . Furthermore, the economy saves at a constant rate (s). If the economy is in steady state, and the unemployment rate is at the natural level (LaTeX: u_n u n ), we would expect

Solution

Option D. The real wage growth in the economy will be equal to sum of sum of the technological growth rate and population growth rate in the country. Thus real wage growth rate in the economy is g_A + g_n .