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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

After several years of economic growth, would you expect the unemployment in an economy to be mainly cyclical or mainly due to the natural rate of unemployment? Why?

To determine

The expectations about the rate of unemployment after several years of economic growth.

Explanation

When the economy has experienced several years of economic growth, we can expect that the remaining unemployment is due to natural rate of unemployment or cyclical unemployment. We define natural rate of unemployment and cyclical unemployment as follows:

Natural rate of unemployment: Natural rate of unemployment is the rate of unemployment that exists even when the economy is at its full employment level of output. It means that NRU contains the unemployment that is in fact from the supply side and not demand side. The components of Natural rate of unemployment (NRU) are:

Frictional Unemployment: It is defined as the unemployment that exists when workers change between jobs. That is, if a worker quits his present job and seeks new employment, he is said to be frictionally unemployed.

Structural Unemployment: It is defined as the unemployment that exists due to lack of skilled workers...

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