The economy in the diagram below begins in long-run equilibrium at E₀. FIGURE 30-2 Refer to Figure 30-2.Suppose the economy is in a recession at equilibrium E₁ that is very long lasting.As a result,many young workers are unable to enter the labour market for the first time and are unable to gain experience.These workers continue to have higher than average unemployment rates when the recession is over,causing the NAIRU to rise.This is an example of

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Quizplus · Accepted Answer

The situation described in the question is an example of hysteresis, which refers to persistent effects of a recession on the economy even after the recession is over. In this case, the recession results in higher unemployment rates among young workers, who then continue to face difficulties finding employment even when the economy recovers. This causes the natural rate of unemployment (NAIRU) to rise.

The Economy in the Diagram Below Begins in Long-Run Equilibrium