Please let me know if you’re interested in more microeconomics in the comments.
Yes.
So whether a productivity shock increases or decreases unemployment depends mostly on that elasticity-looking thing in the middle. If it’s less than −1 (i.e. Prices change greatly in response to productivity shocks), then the MRP (and thus the demand for Laborers) will increase, while if it’s greater than −1 (i.e. Prices change greatly in response to changes in productivity) the MRP will decrease.
I didn’t quite follow this. Also, how do you tell how a change in productivity (in this case an increase) will affect price? It seems like 20% more productivity would mean lower prices, when would this not be the case?
Yes.
I didn’t quite follow this. Also, how do you tell how a change in productivity (in this case an increase) will affect price? It seems like 20% more productivity would mean lower prices, when would this not be the case?