When an economy is at its natural rate of unemployment, which of the following will be true?

Question

Quizplus · Accepted Answer

The natural rate of unemployment refers to the unemployment rate that exists when labour markets are in equilibrium, meaning that there is no cyclical unemployment. However, there will still be some level of frictional and structural unemployment caused by factors such as job search, skills mismatch, and technology shifts. Therefore, the unemployment rate will be greater than 0%. The labour force participation rate may or may not be 100%, depending on the demographic and social factors affecting labour force participation. Choice A is incorrect because 0% unemployment is not feasible or desirable in any economy due to turnover, job search, and other factors. Choice D is also incorrect because structural unemployment can arise from a variety of factors, not just technological change.

When an Economy Is at Its Natural Rate of Unemployment