Exhibit 17-3
-In Exhibit 17-3, the natural rate of unemployment is
A)2 percent because it occurs at the intersection of the curves
B)4 percent because it is the midpoint of the short-run curve
C)4 percent because it is on the long-run curve
D)8 percent because it is the most the economy can attain with high inflation
E)10 percent because it is the most the economy can attain

Question

Exhibit 17-3 
-In Exhibit 17-3, the natural rate of unemployment is
A)2 percent because it occurs at the intersection of the curves 
B)4 percent because it is the midpoint of the short-run curve 
C)4 percent because it is on the long-run curve 
D)8 percent because it is the most the economy can attain with high inflation 
E)10 percent because it is the most the economy can attain

Quizplus · Accepted Answer

The natural rate of unemployment is the level of unemployment that exists when the economy is in long-run equilibrium. It occurs at the intersection of the long-run aggregate supply curve and the aggregate demand curve. In Exhibit 17-3, the natural rate of unemployment is shown to be 4 percent because it is the level of unemployment that exists at the intersection of the long-run curve and the aggregate demand curve. Therefore, choice C is the correct answer.

Exhibit 17-3 -In Exhibit 17-3, the Natural Rate of Unemployment Is