Question

9. Why do wages tend to be sticky' downward? There are several reasons why wage tond Hole "stucky" dan word. Forexample, under an implicit Centract, it is difficult for an employer to cut an employees wage. Empyers tend to lay of scmeccckers-tron to cut wages for everyone. wages will decline only very slowly when The economy business is having & tugh time, due to economic laws and institutions. 10. Explain the concept of natural rate of unemployment. Using the graph below, in what years was unemployment rate likely below natural, and in what years was it certainly above natural rate? Unemployment Rate 1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 2014 Month 11. The U.S. unemployment rate increased from 4.6% in July 2001 to 5.9% by June 2002. Without studying the subject in any detail, would you expect that a change of this kind is more likely to be due to cyclical unemployment or a change in the natural rate of unemployment? Why?

Answer 1

Since Q9 is already answered, Q10 is answered below.

10.

Natural rate of unemployment refers to the level of unemployment which persists in an economy when all the resources are completely utilized or full to full use and the economy is producing its maximum potential level of output.

It generally ranges from 4-5% for USA.

For years when the unemployment rate was below the natural rate would be 1948, 1954, 1958 and 1968

For years when unemployment rate was above the natural rate of unemployment would be 1952, 1959, 1975, 1983 and 2010