1 ) 6.000 SL 5.500 5.000 4.500 4.000 3.500 Real Wage (W/P) 3.000 2.500 2.000 1.500 1.000 0.500 99,000 97,000 98,000 96,000 104,000 102,000 105,000 108,000 101,000 106,000 103,000 107,000 109,000 100,000 Number of Workers (L) Consider the Labor Market Graph above. This graph shows the labor market conditions in a hypothetical country. The natural rate of unemployment in this country is 5 percent. In other words, even during normal times 5 percent of the labor force is unemployed. The natural unemployment is solely due to labor market frictions. The potential GDP in this country equals Yp = 10,000. Okun's alpha equals 2. Currently, the nominal wage rate is W = 400 and the price level is P = 100. Suppose that foreign countries increase their demand for domestic goods. As a result, demand for labor increases by 3,000 workers. Assume that the increase in foreign demand for domestic goods causes the domestic price level to increase by 20 percent and the resulting increase in demand for labor causes the nominal wage rate to increase also by 20 percent. So now we have the following: Real wage = Cyclical rate of unemployment = percent Overall rate of unemployment = percent Real GDP =