Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 10: Q. 1 (page 228)

Many economists view the natural rate of unemployment as the level observed when real GDP is given by the position of the long-run aggregate supply curve. How can there be positive unemployment in this situation?

Short Answer

Expert verified

This unemployment is due to technical influences, and because we keep technological and other factors constant, a natural rate of unemployment exists, giving the rate of unemployment at the LRAS a positive value.

Step by step solution

01

Production Components.

All of the production components are completely utilised on the long run aggregate supply curve (LRAS). To put it another way, the production combination will follow the PPF curve.

Because prices and wages have adequate time to adjust in the long run, the real GDP created by the economy is the optimal level of output. As a result, all of the components will be utilised to their full potential in order to achieve full employment.

02

Technical influences.

However, there is a natural degree of unemployment at this level of output, which has existed due to frictional and structural unemployment.

This unemployment is attributable to technical influences, and because we keep technological and other factors constant, a natural rate of unemployment persists, giving the unemployment rate at the LRAS a positive value.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Consider panel (a) of Figure 10-8. What type of variation in the position of the long-run aggregate supply curve could generate inflation-that is, an increase in the equilibrium price level? In a nation that generally experiences economic growth over the long run, would we anticipate that such a change in the position of the long-run aggregate supply curve could explain persistent inflation?

Identify the combined shifts in long-run aggregate supply and aggregate demand that could explain the following simultaneous occurrences,

a. An increase in equilibrium real GDP and an increase in the equilibrium price level

b. A decrease in equilibrium real GDP with no change in the equilibrium price level

c. An increase in equilibrium real GDP with no change in the equilibrium price level

d. A decrease in equilibrium real GDP and a decrease in the equilibrium price level

In Ciudad Barrios, El Salvador, the latest payments from relatives working in the United States have finally arrived. When the credit unions open for business, up to 150 people are already waiting in line. After receiving the funds their relatives have transmitted to these institutions, customers go off to outdoor markets to stock up on food or clothing or to appliance stores to purchase new refrigerators or televisions. Similar scenes occur throughout the developing world, as each year migrants working in higher-income, developed nations send around $200 billion of their earnings back to their relatives in less developed nations. Evidence indicates that the relatives, such as those in Ciudad Barrios, typically spend nearly all of the funds on current consumption.

a. Based on the information supplied, are developing countries' income inflows transmitted by migrant workers primarily affecting their economies' long-run aggregate supply curves or aggregate demand curves?

b. How are equilibrium price levels in nations that are recipients of large inflows of funds from migrants likely to be affected? Explain your reasoning.

As more of the nation's systems of river locks become deficient, what is happening to the pace at which the U.S. production possibilities curve shifts outward over time?

Explain how, if at all, each of the following events would affect equilibrium real GDP and the long run equilibrium price level.

a. A reduction in the quantity of money in circulation

b. An income tax rebate (the return of previously paid taxes) from the government to households, which they can apply only to purchases of goods and services

c. A technological improvement

d. A decrease in the value of the home currency in terms of the currencies of other nations
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free