The rate of unemployment that occurs when the economy is producing its potential GDP _____.
A)is called the natural rate of unemployment
B)is zero
C)is thought to be approximately 10%
D)can be kept at zero through fiscal policy
E)is equal to the rate of stagflation in most years

Question

Quizplus · Accepted Answer

The rate of unemployment that occurs when the economy is producing its potential GDP is called the natural rate of unemployment. This rate is not zero, as some level of unemployment is considered normal in any economy, due to factors such as frictional unemployment and structural unemployment. The natural rate of unemployment is thought to be approximately 4-5%. Fiscal policy cannot keep the natural rate of unemployment at zero, as it is determined by underlying economic factors.

The Rate of Unemployment That Occurs When the Economy Is