Other things the same, an increase in wages above their equilibrium level

a. increases frictional unemployment but leaves the natural rate of unemployment unchanged.

b. increases frictional unemployment and increases the natural rate of unemployment.

c. increases structural unemployment but leaves the natural rate of unemployment unchanged.

d. increases structural unemployment and increases the natural rate of unemployment.

Question

Business

Camacho

18 September, 20:41

Other things the same, an increase in wages above their equilibrium level

a. increases frictional unemployment but leaves the natural rate of unemployment unchanged.

b. increases frictional unemployment and increases the natural rate of unemployment.

c. increases structural unemployment but leaves the natural rate of unemployment unchanged.

d. increases structural unemployment and increases the natural rate of unemployment.

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Answers (1)

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Moises Mahoney · Answer 1

(D) increases structural unemployment and increases the natural rate of unemployment.

Explanation:

When wages are set above the equilibrium level, the labor supplied by employees exceeds the quantity demanded by employers. Therefore there is a surplus of labor and employees need to be reduced thereby increasing structural unemployment and consequently increases the natural rate of unemployment.