The document discusses the differences between nominal and real wages and how real wages determine equilibrium employment. It asks to draw a diagram showing how a reduction in education/training opportunities would decrease real wages and increase unemployment. It also asks how low aggregate demand and high unemployment could automatically adjust back to equilibrium, discussing if this would truly occur in reality.

1. draw diagram and explain
Explainthedifferencebetweenthenominalwageandtherealwage.Usingawage-settingcurveandprice-
setting curve diagram, explain how the real wage determines the equilibrium level of
employment in the economy.
(b) On a new wage-setting curve and price-setting curve diagram, illustrate the change to the
equilibrium level of employment if there is a reduction in education and training opportunities.
Clearly state what will happen to the real wage and the level of unemployment.
(c) Suppose an economy has low aggregate demand with high unemployment. With the aid of a
new wage- setting curve and price-setting curve diagram, explain how the economy could
automatically adjust back to equilibrium under these circumstances. Would this occur in reality?
Justify your answer.