When an economy is at its natural rate of unemployment, which of the following will be true?
A)The unemployment rate will be 0%.
B)The labour force participation rate will be 100%.
C)The unemployment rate will be greater than 0%.
D)The employment population ratio will be 80%.
E)Only structural unemployment as a result of technological change will exist in the economy.

Question

Quizplus · Accepted Answer

When an economy is at its natural rate of unemployment, it means that there is no cyclical unemployment (which is the result of economic downturns) and the unemployment rate is steady state. There will still be some frictional and structural unemployment, hence the unemployment rate will be greater than 0%. The labour force participation rate and employment population ratio will depend on the demographic characteristics of the population and other factors such as retirement age, disability rates, and school enrollment rates. It is not accurate to assume that they will be fixed at 100% and 80%, respectively.

When an Economy Is at Its Natural Rate of Unemployment