Suppose that after Brexit, the government adopts policies that make it difficult for European firms to enter the UK market. Assume that the level of employment and the labour supply remains constant. Does it leads to inflation or deflation? Discuss the mechanism. – Brilliant Papers

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Suppose that after Brexit, the government adopts policies that make it difficult for European firms to enter the UK market. Assume that the level of employment and the labour supply remains constant. Does it leads to inflation or deflation? Discuss the mechanism.

Question: 2. Please answer following parts in this question. (30 marks)

Draw the equilibrium of unemployment using WS-PS model and discuss the bargaining gap. (10 marks)

Suppose that after Brexit, the government adopts policies that make it difficult for European firms to enter the UK market. Assume that the level of employment and the labour supply remains constant. Does it leads to inflation or deflation? Discuss the mechanism.

(10 marks)

Assume now you are working for the Bank of England and as part of your job you have to monitor inflation and deflation and recommend policy alternatives, what policy could be best to stabilize the economy? (10 marks)

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