Question

The natural rate of unemployment is also referred to as:

Group of answer choices

All of the above

The non-accelerating inflation rate of unemployment.

The equilibrium rate of unemployment.

Answer 1

Let us check the following group of choices one by one.

✓ First choice is: The non-accelerating inflation rate of unemployment

The Non Accelerating Inflation Rate of Unemployment and Natural Rate of Unemployment, both reflects the equilibrum in the long run. But they are conceptually different from each other in the short run.

NAIRU or Non Accelerating Inflation Rate of Unemployment is the rate at which there is no acceleration of inflation rate i.e. as same as the Natural Rate of Unemployment. But in short run, Natural Unemployment is independent of inflation rate.

Eventually, the Natural Rate (NR) and Non Accelerating Inflation Rate (NAIR) are at same level.

In short run, if the economy experiences a rise in demand, then unemployment falls and inflation increases. The NAIR falls short of NR. Hence, NR and NAIR are not always same in the short run.

But in the long run, prices adjusts and the economy again achieves the equilibrum level. Hence, Non Accelerating Inflation Rate again converges to the Natural Rate in the Long Run.

Hence, only in the Long Run, Natural Rate of Unemployment can be reffered as Non Accelerating Inflation Rate of Unemployment.

✓ Second choice is: The equilibrium rate of unemployment.

We have seen in the general equilibrum model that, a market is in perfect equilibrum at the Natural Rate of Unemployment. Hence, it is clear that at Natural Rate of Unemployment the economy is at general equilibrum.

Hence, Natural Rate and Equilibrum Rate if Unemployment are reffered as same.

Hence, the answer is: Equilibrum Rate of Unemployment.

We eliminate Non Accelerating Inflation Rate of Unemployment, as in short run, this is not same as Natural Rate of Unemployment.

​​​​Hope the explanations are clear to you my friend.