The following figure shows wage rate versus quantity of labor.

-Refer to the figure above.If S₀ is the supply of labor,D₀ is the labor demand curve during a cyclical downturn,and D₁ is the labor demand curve during a cyclical expansion,which expression best represents the natural level of employment?

Question

The following figure shows wage rate versus quantity of labor.
 
-Refer to the figure above.If S₀ is the supply of labor,D₀ is the labor demand curve during a cyclical downturn,and D₁ is the labor demand curve during a cyclical expansion,which expression best represents the natural level of employment?

Quizplus · Accepted Answer

The natural level of employment represents the quantity of labor when the economy is at full employment, which occurs where the labor supply curve intersects with the labor demand curve in the long run. Based on the diagram, the natural level of employment would be the average of the quantity of labor demanded at the peak of cyclical expansion (Qᵤ) and at the trough of cyclical downturn (Q₀). Therefore, (Qᵤ + Q₀)/2 is the expression that best represents the natural level of employment.

The Following Figure Shows Wage Rate Versus Quantity of Labor