Graphically Illustrate (Using the WS and PS Relations) and Explain

question 61

Essay

Graphically illustrate (using the WS and PS relations) and explain the effects of a decrease in unemployment benefits on the equilibrium real wage, the natural rate of unemployment, the natural level of employment, and the natural level of output.

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Definitions:

Expansionary Gap

A situation in macroeconomics when aggregate output is above potential output, often leading to inflationary pressures.

Recessionary Gap

Describes a situation where the real GDP of an economy is less than its potential GDP, indicating underutilized resources and a sluggish economy.

Deflation

A decrease in the general price level of goods and services in an economy over a period of time, potentially leading to increased unemployment and slower economic growth.

Inflation

The pace of ascent in the general pricing for goods and services, eroding the capability to buy.