Question

The unemployment rate that is consistent with full employment is known as ___________.

Answer 1

Answer:

Natural rate of unemployment.

Explanation:

Unemployment rate is one the major economic indicators used to measure the performance of an economy. Unemployment describes the situation where persons who are willing, ready and able to work cannot find one.  To track the number of persons in this category , economists compute the unemployment rate.

There are three types of unemployment.

1. Frictional unemployment: The length of time for which people remain out of jobs as they transit from one job to another. In other words, landing a job is not instantaneous; it takes time.

2. Structural unemployment: this occurs when there are changes in the methods and processes by which goods and services are produced. Here, people remain out of jobs because there is now a mismatch between the skills they possess and that required by employers due to changes in the economy.

For example, the adoption of technology to automate production would mean some factory workers losing their jobs.

3. Cyclical unemployment: This associated with movements of the real output( real GDP) around the long run full employment level. This fluctuation is referred to as business cycle- either a boom or a recession

Where people are without jobs due to recession(negative output growth), it is called cyclical unemployment.

Natural rate of unemployment is the sum of the frictional and structural. It is the unemployment rate where an economy is achieving the full employment output. The full employment level of output is the amount of real GDP achieved where an economy is operating using all of its productive resources efficiently

Actual rate of unemployment represents the amount of unemployed people at particular point in time. it is determined by dividing the number of people unemployed by the labour force.

Relationship between Natural rate and Actual rate of unemployment.

Where an economy is operating at the full employment level of output the actual rate of unemployment is equal to the natural rate. However, during recession the actual rate is higher than the natural rate, but less that the natural rate during a boom. Cyclical unemployment increases the actual unemployment rate above the natural rate during recession.

It is important to note that there will be some amount of unemployment rate even if the economy is operating at the efficient level- i.e the full employment output.

The unemployment rate that is consistent with full employment is known as natural rate of unemployment