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The long-run equilibrium in the labor market, defined by the intersection of the wage-setting and price-setting curves, is contingent on the stability of these curves. Changes in underlying economic conditions can cause either the WS curve or the PS curve to shift, leading to a new equilibrium with different levels of real wages and unemployment.

Shifts in the WS and PS Curves

Using the wage-setting and price-setting framework, analyze the long-run impact of the policy described in the case study. Identify which curve shifts, in which direction, and what happens to the equilibrium real wage and the natural rate of unemployment. Provide a brief justification for your answer.

Impact of Market Regulation on Labor Equilibrium

Suppose a country's government enacts new, stronger antitrust laws that significantly increase the level of competition in the product market. According to the wage-setting (WS) and price-setting (PS) model, what is the most likely effect on the long-run labor market equilibrium?

A government significantly increases the generosity and duration of unemployment benefits. Explain how this policy change affects the wage-setting curve, the price-setting curve, and the long-run equilibrium unemployment rate. Justify your reasoning for each component.

Impact of Unemployment Benefits on Labor Market Equilibrium

A government is considering two distinct policy proposals aimed at influencing the labor market. Policy A involves a significant increase in the generosity and duration of unemployment benefits. Policy B involves a widespread deregulation effort designed to increase competition among firms in the product market. Analyze each policy's effect on the wage-setting (WS) and price-setting (PS) curves. Then, evaluate which policy is more likely to result in a lower natural rate of unemployment in the long run, justifying your conclusion.

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