Given this:

Then:

Can you please explain to me what this means in simple words: "the natural level of output is such that, at the associated rate of unemployment, the real wage chosen in wage setting is equal to the real wage implied by price setting."

From Unemployment to Employment Associated with the natural rate of unemployment is a natural level of employment. = = U L,:-N N U = 1 LF Employment in terms of the labor force and the unemployment rate equals: LE LE N = (1 u)L, The natural level of employment, N,, is given by: N, = (1 u LF From Employment to Output Associated with the natural level of employment is the natural level of output, and since (Y=AN): Y, = AN , = (1 u ) ALF In words, the natural level of output is such that, at the associated rate of unemployment, the real wage chosen in wage setting is equal to the real wage implied by price setting. 7