Suppose an economist breaks the unemployment rate into the following components: frictional (2%), structural (1%), and cyclical (4%). Based on these estimates, the natural rate of unemployment is
A) 0%.
B) 3%.
C) 5%.
D) 7%.

Question

Quizplus · Accepted Answer

The natural rate of unemployment is the sum of frictional and structural unemployment, which is 2% + 1% = 3%. Cyclical unemployment is caused by business cycles and is not a part of the natural rate of unemployment. Therefore, the best choice is B, which corresponds to 3%.

Suppose an Economist Breaks the Unemployment Rate into the Following