The natural rate of unemployment
A) is an artificially low rate that cannot be maintained.
B) is a constant rate that is unaffected by changes in public policy.
C) is the rate of unemployment present when the economy is operating at full employment.
D) is equal to the number of persons unemployed divided by the number in the labor force.

Question

Quizplus · Accepted Answer

The natural rate of unemployment is the rate of unemployment present when the economy is operating at full employment, meaning that there is no cyclical unemployment. It is a long-term equilibrium rate that is determined by structural and frictional factors in the labor market, such as job search and matching, skill mismatches, and geographic imbalances. Public policy can affect the natural rate of unemployment only in the long run by addressing these underlying factors rather than trying to stimulate demand artificially, which would lead to inflationary pressures. The natural rate of unemployment is typically estimated to be between 4 and 6 percent in most advanced economies.

The Natural Rate of Unemployment