When the rate of cyclical unemployment is zero, the:
A) natural rate of unemployment must also be zero.
B) rate of frictional unemployment must be negative.
C) economy must have entered a recessionary stage.
D) Keynesian aggregate supply curve must be horizontal.
E) economy is considered to be at full employment.

Question

Quizplus · Accepted Answer

When the rate of cyclical unemployment is zero, it means that all individuals who want a job and are able to work are already employed. This is considered to be full employment, which is the stage in which the economy is producing at its maximum potential and the unemployment rate is equal to the natural rate of unemployment (which includes frictional and structural unemployment). Therefore, the best choice is E, "the economy is considered to be at full employment."

When the Rate of Cyclical Unemployment Is Zero, The