Questions In Canada, the natural rate of unemployment is 6 percent, while in the US it...

Questions

In Canada, the natural rate of unemployment is 6 percent, while in the US it is only 4 percent. Explain why there is a difference between these two countries. How does a country determine it’s natural rate of unemployment

Looking on the Statistics Canada Website find the data pertaining to the consumer price index. What is the base year that Stats Can is currently using? Why are they using this year? Are there any plans to change this

What has the Bank of Canada targeted as an acceptable level of inflation in Canada? By researching on the internet and the Bank of Canada’s website, determine whether the Bank has been successful achieving this target and for how has that success lasted?

Solutions

Expert Solution

The natural rate of unemployment represents the lowest rate of unemployment however there will be stability in the inflation. The natural rate of unemployment is computed as frictionally unemployed (FU) toand structurally unemployed (SU), and dividing this number by the total labor force. The natural rate of unemployment can differ across nations due to the varying degrees of union power, unemployment insurance, collective-bargaining laws, minimum-wage laws, job-training programs, and other factors that impact the conditions in labor- market.
There can be two explanations for the higher natural rate of unemployment in Canada in comparison to U.S. Firstly, the frictional unemployment will occur when the employees and people are taking time to searching for the suitable job match. As a result the frictional unemployment would be higher in Canada that has large and frequent sectoral shifts and generous compensation on unemployment. However it does not seems that Canada have greater sectoral shifts in comparison to U.S. thus the difference in natural rate of unemployment might be due to more generous compensation on unemployment in Canada.
The second explanation would be that the rate of wages in few labour markets is above equilibrium for attracting and retaining productive employees. The wages above equilibrium in few markets in Canada because of minimum-wage laws may contribute to unemployment more in Canada and higher natural rate of unemployment.

Rahul Sunny answered 2 months ago

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