Question

Suppose the government passes a law that significantly increases the minimum wage. The policy will cause the natural rate of unemployment to (rise / fall), which will: ____(A) Not affect the long-run aggregate supply curve(B) Shift the long-run aggregate supply curve to the right(C) Shift the long-run aggregate supply curve to the left

Answer 1

The correct answer is: rise; Shift the long-run aggregate supply curve to the left (letter "C").

Step-by-step explanation:

The supply curve portraits the interaction between the price of a good or service and the quantity supplied. The higher the price, the lesser the quantity provided will be and vice versa. In the graph, the price appears in the vertical axis while the quantity in the horizontal axis. If higher the price, the curve will move to the left. If higher the quantity, the curve will move to the right.

In the example, as the wages (price) will be higher, the number of jobs offered (quantity) will decrease, causing the unemployment rate to increase. As high as the wages are in the long term, they will drag the supply curve to the left in the graph.