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NATURAL RATE OF UNEMPLOYMENT

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2a. If the economy currently has a frictional unemployment rate of 2 percent, structural unemployment of 2 percent, seasonal unemployment of 0.5 percent, and cyclical unemployment of 2 percent, what is the natural rate of unemployment?

Where is the economy operating relative to its potential GDP?

b. What happens to the natural rate of unemployment and potential GDP if cyclical unemployment rises to 3 percent with other types of unemployment unchanged from part (a)?

c. What happens to the natural rate of unemployment and potential GDP if structural unemployment falls to 1.5 percent with other types of unemployment unchanged from part (a)?

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This discusses the concept of NATURAL RATE OF UNEMPLOYMENT

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NATURAL RATE OF UNEMPLOYMENT

Proposed by the American economist Milton Friedman (1912-1992), NARU refers to the rate of unemployment, which occurs when all markets are in an equilibrium position. Thus the natural rate of unemployment is the equilibrium rate of unemployment.

Frictional unemployment: This is simply the time it takes a company to match a qualified job applicant with the right position. It also includes people who are between jobs. It is simply the time it takes for a worker, having lost his job, to register at the job agencies, read the adverts in the papers or on the internet, write or update their CV, ...

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