The natural rate of unemployment changes when:
A) the cyclical unemployment changes.
B) the actual rate of unemployment changes.
C) labour market institutions change.
D) government policies remain the same.

Question

Quizplus · Accepted Answer

The natural rate of unemployment is the rate of unemployment that exists when the economy is at potential output or full employment. It is determined by structural factors such as technology, demographics, and labour market institutions. Therefore, changes in labour market institutions such as changes in minimum wage laws or collective bargaining agreements can cause the natural rate of unemployment to change. Cyclical unemployment and actual rate of unemployment are determined by the overall state of the economy and do not affect the natural rate. Government policies can also affect the natural rate by changing labour market institutions or affecting structural factors, so D is incorrect.

The Natural Rate of Unemployment Changes When