Question

"A healthy economy can never have a zero unemployment rate." Do you agree or disagree with this statement? Explain.

At least 175 words

Answer 1

We do not agree with the statement. healthy economy can be considered to be an economy which is operating at its full employment level. This implies that all the resources in the economy are fully employed and that the economy is producing the potential GDP. It is considered that the rate of unemployment in the economy in such a situation is equal to its natural rate and that the natural rate of unemployment is never zero.

this is because the natural rate of unemployment is the sum of the frictional unemployment rate and structural unemployment rate both of which are not zero. This is because frictional unemployment it occurs due to the delay in job matching when workers leave one job for another. Similarly there are structural changes in the economy even when it is operating at its for employment level due to which there is structural unemployment

It is due to this season that even when the economy is using all its resources to their maximum extent there is certain degree of unemployment in the economy which is basically the sum of frictional unemployment and structural unemployment.