The natural rate of unemployment is
A) higher than the full-employment rate of unemployment.
B) lower than the full-employment rate of unemployment.
C) that rate of unemployment occurring when the economy is at its potential output.
D) found by dividing total unemployment by the size of the labor force.

Question

Quizplus · Accepted Answer

The natural rate of unemployment is that rate of unemployment occurring when the economy is at its potential output, meaning that there are no cyclical or demand-driven factors affecting the level of unemployment. It is a function of the structure of the labor market, including factors like the rate of job turnover and the mismatch between workers' skills and the available jobs. It is typically lower than the full-employment rate of unemployment, which is the lowest rate of unemployment possible without sparking inflationary pressures. Total unemployment divided by the size of the labor force would give the overall unemployment rate, but it would not necessarily capture the natural rate.

The Natural Rate of Unemployment Is