2. Graphically demonstrate the effect of an increase in the minimum wage on the natural rate...

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2. Graphically demonstrate the effect of an increase in the minimum wage on the natural rate of unemployment. (5 pts)

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Answer 1

Answer #1

Real wage rate Supply of labor Unemployment Demand for labor Quantity of labor

In the diagram above, as the minimum real wage rate increases from w to w', quantity of labor supplied rises whereas quantity of labor demanded falls. Thus, natural rate of unemployment increases.

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Answer 2

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