The figure depicts the labor market when there has been a negative aggregate demand shock. Which of the following statements are correct? * The equilibrium level of unemployment... The figure depicts the labor market when there has been a negative aggregate demand shock. Which of the following statements are correct? * The equilibrium level of unemployment is N_L - N_B. * The new long-run equilibrium is point B with N_B workers employed. * N_L - N_X and N_L - N_B are the levels of involuntary unemployment at X and B, respectively. * The demand-deficient unemployment at B is N_L - N_B.
Understand the Problem
The question asks us to analyze a labor market diagram that illustrates the effects of a negative aggregate demand shock. We need to evaluate four statements related to equilibrium levels, unemployment, and their relationships as depicted in the figure to determine which statements are correct.
Answer
All statements are correct.
All of the provided statements are correct regarding the labor market after a negative aggregate demand shock, based on the given figure.
Answer for screen readers
All of the provided statements are correct regarding the labor market after a negative aggregate demand shock, based on the given figure.
More Information
A negative aggregate demand shock reduces firms willingness to hire, leading to a new equilibrium with lower employment (N_B) and higher unemployment. The difference between the labor force (N_L) and the employed (N_B or N_X) represents unemployment. Involuntary unemployment arises because workers are willing to work at the prevailing wage but cannot find jobs.
Tips
A common mistake is to confuse the different types of unemployment (e.g., voluntary, involuntary, structural, cyclical) and their causes. Understanding the labor market model, including the wage-setting and price-setting curves, is essential for analyzing the effects of economic shocks.
Sources
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