Economists in Olliestan estimate the natural rate of unemployment is 7 percent. If the official unemployment rate is 9 percent, then

Question

Quizplus · Accepted Answer

The natural rate of unemployment represents the level of unemployment that would exist in the economy in the long run, when it is operating at its potential level of output. If the actual unemployment rate is higher than the natural rate, it suggests a recessionary gap or an output gap, where real GDP is less than potential GDP. The difference between the two rates (9-7=2%) represents the healthy rate of unemployment, consisting of frictional and structural unemployment. Cyclical unemployment is the deviation from the natural rate caused by business cycle fluctuations, and in this case, it is positive (9-7=2%). Therefore, the correct answer is B.

Economists in Olliestan Estimate the Natural Rate of Unemployment Is