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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

How is the natural rate of unemployment Illustrated in an AD/AS model?

To determine

To illustrate: Natural rate of unemployment by AS/AD approach.

Explanation

Natural rate of unemployment is the rate of unemployment in long-run, when economy is at its stability. Unemployment usually occurs when there is cyclic or business fluctuations. It may be due to recession or deflation.

In the above diagram, AD curve intersects SRAS curve. Equilibrium is attained at E0, Price level at P0and real GDP at Y0.

As there is huge gap between actual GDP and potential GDP...

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