The existence of unemployment

a. Why does the wage-setting relation in Figure 1 have an upward slope? As N approaches L, what happens to the unemployment rate?

b. The price-setting relation is horizontal. How would an increase in the mark-up affect the position of the price-setting relation in Figure 1? How would an increase in the mark-up affect the natural rate of unemployment in Figure 1?

Data from Figure 1

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Total population: 327.2 million Non-institutional civilian population: 257.7 million Civilian labor force 162.0 million Employed 155.7 million Unemployed 6.3 million Out of the labor force 95.7 million