Consider the Graph. This graph shows the labor market conditions in a 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 unemployment. The natural unemployment is solely due to labor market frictions. The potential GDP in this country equals YP= 100,000. Okun's alpha equals 2.

1. Currently, the nominal wage rate is W = 500 and the price level is P = 100. As a result, currentlypersons are naturally unemployed andpersons are cyclically unemployed.Moreover, the real GDP in this country equals__________units.
2. Suppose that foreign countries reduce their demand for domestic goods. The low demand for domestic goods forces many firms to lay off workers, causing unemployment. Thereduction in foreign demand for domestic goods results in 50 percent reduction in the price level. The resulting unemployment causes the money wage to decrease by 20 percent. (These reductions are relative to the numbers you saw in the previous question). So now we have the following:

Nominal (or money) wage =

Price level =

Real wage =

Natural rate of unemployment =________ percent

Cyclical rate of unemployment =_________ percent

Overall rate of unemployment =_________ percent

The real GDP equals _______ units.