Question #72009
''What is meant by the “natural rate of unemployment”? Using diagrams show what happens to the natural rate of unemployment if there is an increase in firms’ price mark up. What is the effect on the supply function?''
in the question above I'm confused about what is meant by ''What is the effect on the supply function'' i tried to solve it assuming that supply function is the aggregate supply. Markup increases then wage decrease so AS shifts right because workers are willing to accept any salary. Is my answer right?
in the question above I'm confused about what is meant by ''What is the effect on the supply function'' i tried to solve it assuming that supply function is the aggregate supply. Markup increases then wage decrease so AS shifts right because workers are willing to accept any salary. Is my answer right?
Expert's answer
Correct.
As wage decreases, markup grows. Therefore, AS shifts right because workers are willing to accept any salary.
As wage decreases, markup grows. Therefore, AS shifts right because workers are willing to accept any salary.
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