If the actual rate of unemployment is 5%,what is the natural rate of unemployment if output is 4% below potential?

Question

Quizplus · Accepted Answer

The natural rate of unemployment is the rate of unemployment that exists when the economy is at its potential output. If the actual rate of unemployment is 5%, and output is 4% below potential, then the natural rate of unemployment must be 5% - 4% = 1%. Therefore, the cyclical unemployment rate is 5% - 1% = 4%. As the question asks for the natural rate of unemployment, the answer is A) 3%.

If the Actual Rate of Unemployment Is 5%,what Is the Natural