An economy that is operating on its institutional production possibilities frontier is operating at its natural unemployment rate.

Question

Quizplus · Accepted Answer

The institutional production possibilities frontier represents the maximum output that can be produced within the existing institutional framework of an economy. This means that all available resources are being used efficiently and optimally. At this point, the economy is producing at its full potential and the natural rate of unemployment (which includes frictional and structural unemployment) prevails. Therefore, an economy operating on its institutional production possibilities frontier is operating at its natural unemployment rate.

An Economy That Is Operating on Its Institutional Production Possibilities