Question

An economy’s natural rate of unemployment is the

a. economy’s long-run target level of unemployment.
b. amount of unemployment that the economy normally experiences.
c. lowest rate of unemployment the economy can achieve.

Answer 1

Answer: lowest rate of unemployment the economy can achieve.

Natural rate of unemployment is the lowest level of unemployment that an economy can achieve with stable or non accelerating inflation. This means that at the natural rate of unemployment the only way to decrease unemployment is by increasing inflation. So if the inflation is 7 % and the natural rate of unemployment is 4% and the government wants to decrease unemployment by 1% it will have to use policies which increase inflation.

Step-by-step explanation: