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... What is the natural rate of unemployment? What policies, if any, can be used to decrease the rate of unemployment in (a) the short run and (b) the long run?
The natural rate of unemployment is the normal rate of unemployment in an economy around which the unemployment rate fluctuates, it is the normal rate of unemployment refers to the amount of unemployment that the economy normally experiences. However I feel it is important it is noted the ¡§natural¡¨ label given to this type of unemployment does not imply that this rate of unemployment is desirable. Nor does this label imply that this level of unemployment is constant over time or resistant to economic policy. ... The reasons for this unemployment are; firstly there is a period of time in which workers are searching for a job best suited to them, this unemployment is sometimes referred to as frictional unemployment. ... This type of unemployment is often referred to as structural unemployment and unemployment of this kind occurs when wages are set above the level that brings supply and demand into equilibrium.
To assess what policies, if any, can be used to decrease the rate of unemployment in both the short run and long run, it is important we look at the Phillips curve. ... Phillips to show the negative relationship between unemployment and inflation. As is shown on the diagram, where the unemployment rate is high, the rate of inflation tends to be low (point A). It is also observable that where the level of unemployment it low, inflation tends to be high (point B).
Approximate Word count = 1265
Approximate Pages = 5.1
(250 words per page double spaced)
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