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 rate of unemployment?

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 rate of unemployment?

Quizplus · Accepted Answer

The natural rate of unemployment is the rate of unemployment when the economy is at full employment, which is where the labor market is in equilibrium. This occurs at the intersection of the labor supply and labor demand curves, which is represented by the point Qᵤ where the two curves intersect. During cyclical downturns, the labor demand curve shifts to D₀, resulting in a surplus of labor, and the unemployment rate increases. During cyclical expansions, the labor demand curve shifts to D₁, resulting in a shortage of labor, and the unemployment rate decreases. Therefore, the natural rate of unemployment can be estimated as the average of the two equilibrium levels, which is represented by the midpoint of the line segment between Qᵤ and Q₀, or (Qᵤ - Q₀)/2.

The Following Figure Shows Wage Rate Versus Quantity of Labor