Multiple choice

Natural rate of unemployment is the rate of unemployment at which:

  1. Rate of inflation is stable

  2. Rate of inflation is unstable

  3. Rate of inflation is falling

  4. Rate of inflation is rising
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The natural rate of unemployment (NAIRU) is the unemployment rate consistent with stable inflation - when actual unemployment equals natural rate, inflation neither accelerates nor decelerates. At the natural rate, labor market is in equilibrium where voluntary unemployment equals frictional plus structural unemployment. If unemployment falls below natural rate, inflation rises; above it, inflation falls.

Keep practicing — related questions