What is the difference between cyclical unemployment, full employment, and the natural rate of unemployment?

Expert Solution

Answer : The difference between cyclical unemployment, full employment and the natural rate of unemployment is following,

Cyclical unemployment : This unemployment situation totally depends on business cycle time period of economic growth . When the economic situation is down then workers loss their jobs because at that time firms reduce the labour input to reduce the cost level. But when the economy is going up then again demand for workers increase and hence workers get their jobs again. It happens totally like a cyclical condition and hence such Unemployments are known as cyclical unemployment.

Full employment : This means that there is no excess labour supply in the economy. All are employeed here.

Natural rate of unemployment : When labour market is in equilibrium condition, i. e., if the labour demand = the labour supply in the economy then it is known as the natural rate of unemployment.

Natural unemployment = Frictional unemployment + Structural unemployment.

When employeers search job to go to better job then this is called frictional unemployment.

When there is a gap between workers actual skills and the demand for workers skills in the economy then it is called structural unemployment.

Rahul Sunny answered 2 years ago

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