What is the Natural Rate of Unemployment?
- The natural rate of unemployment is the level of unemployment that would exist if the economy were producing at its potential output.
How Do I Remember It?
- Think of the natural rate of unemployment as the baseline level of unemployment when the economy is operating at its full potential. It’s like the background noise that is always present.
Real World Example
- In the United States, the natural rate of unemployment is estimated to be around 4% to 5%. This means that even in a healthy economy with full employment, there will still be some level of unemployment due to factors such as people changing jobs, entering or reentering the workforce, and structural shifts in industries.
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