Exhibit 16-4
-In Exhibit 16-4,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 16-4 
-In Exhibit 16-4,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 can be defined as the level of unemployment that exists when the economy is producing at its potential output. In Exhibit 16-4, the long-run aggregate supply curve represents potential output, and the natural rate of unemployment is the level of unemployment that corresponds to this curve. Therefore, the correct answer is C, 4 percent because it is on the long-run curve. Option A is incorrect because the intersection of the curves is not necessarily the natural rate of unemployment. Option B is incorrect because the midpoint of the short-run curve is not the same as the natural rate of unemployment. Option D and E are incorrect because they suggest that the economy cannot produce more than a certain level of output, which is not necessarily true.

Exhibit 16-4 -In Exhibit 16-4,the Natural Rate of Unemployment Is