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Elucidate the natural rate of unemployment and the impact of demand and supply shock.

Recently, droughts, poor harvest conditions, and growing demand from fast-growing countries in the developing world have sent world food prices skyrocketing.

a) Would you analyze this as a demand shock or a supply shock, and why? Is this likely to change the natural rate of unemployment (NRU)? describe the natural rate and why the shock likely will or won't change NRU. (No graph required.)

b) Demonstrate the effect of escalating food prices on an AS-AD graph, starting with MR equilibrium. Show the SR solution, and describe WHY prices and GDP move in the direction you select.

c) Show the MR solution, and describe WHY prices and GDP move in the direction you select.

d) Now suppose that labor productivity rises significantly at the same time that food prices start escalating. describe how this would alter your analysis and graph, but you need not graph it.

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M920491

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