Discuss why it is very difficult to reduce the unemployment rate below the natural rate?

Expert Solution

Natural rate of unemployment is comprised of frictional rate of unemployment and structural rate of unemployment. Now this implies that if the civilian unemployment rate (which includes cyclical rate of unemployment, frictional rate of unemployment and structural rate of unemployment) has to be reduced below the natural rate, not only cyclical rate of unemployment should be reduced, there should be a reduction in frictional rate of unemployment and structural rate of unemployment.

Only long term reforms and structural changes can bring change in structural rate of unemployment so it is difficult to reduce it in the short run. Also, frictional rate of unemployment is reduced when there are easy job matching incentives. In case we do work upon this and reduce the unemployment rate below the natural rate, then we would require to create more jobs, increase the demand for labor, which increases wages and and prices. This indicates that the cost of bringing down the unemployment rate below the natural rate is high enough.

Rahul Sunny answered 1 year ago

Why an attempt to keep the unemployment rate below the natural rate will only cause inflation...

Why an attempt to keep the unemployment rate below the natural rate will only cause inflation to accelerate? use graph explain, thanks.

Explain two policy recommendations that can reduce the natural rate of unemployment.

The official unemployment rate in this country has been below the natural rate of unemployment (4.5%)...

The official unemployment rate in this country has been below the natural rate of unemployment (4.5%) for eleven months, which would ordinarily put pressure on wages and create inflation. Yet, the average earnings for nonfarm private employees has only increased by 2.6%, which is marginally better than the inflation rate of 2.13% in the same year. Identify and analyze factors that may explain why high employment rates have not resulted in a very tight labor market.

If actual GDP is below potential GDP, then the unemployment rate is _____________ the natural rate. A)...

If actual GDP is below potential GDP, then the unemployment rate is _____________ the natural rate. A) below B) above C) right at D) cannot be determined without inflation rate Fiscal policy affects the economy through: A) Taxes B) Government Spending C) Interest Rates D) Taxes and Government Spending The Federal Reserve Bank’s decisions on monetary policy are made by the: Board of Governors B) FOMC C) Reserve Banks D) Federal Reserve Bank of New York One of the FED’s responses to the COVID crisis has been to: Lower the...

1.What does the natural rate of unemployment refer to? Discuss. 2.What is the natural rate of...

1.What does the natural rate of unemployment refer to? Discuss. 2.What is the natural rate of unemployment equal to? Discuss. 3.Can the natural rate of unemployment ever change? If so, how? Discuss.

The natural rate of unemployment is the unemployment rate at which the inflation rate has no...

The natural rate of unemployment is the unemployment rate at which the inflation rate has no tendency to increase or decrease. However, the natural rate of unemployment is not fixed. What causes changes in the natural rate of unemployment? Which of the following will not cause the natural rate of unemployment to change? A. Many previous periods with high rates of unemployment. B. Changes in the money supply resulting from monetary policy. C. Changes in labor market institutions. D. Changes...

Explain why government economic policies should not seek to push unemployment levels below the natural rate...

Explain why government economic policies should not seek to push unemployment levels below the natural rate of unemployment.(the answer is expected to be around 200 words. )

In 2019, the united states is experiencing an unemployment rate that is below its natural ......

In 2019, the united states is experiencing an unemployment rate that is below its natural ... Your question has been answered Let us know if you got a helpful answer. Rate this answer Question: 1. In 2019, the United States is experiencing an unemployment rate that is below its natural rate... 1. In 2019, the United States is experiencing an unemployment rate that is below its natural rate of unemployment. That is, its labor force is more than fully employed....

A) What is the “Natural rate” of unemployment? B) Why is a movement up the Phillips...

A) What is the “Natural rate” of unemployment? B) Why is a movement up the Phillips curve (that is, a reduction in unemployment below the “natural rate” at the cost of higher inflation) untenable in the very long run? Explain using Aggregate Demand and Aggregate Supply. C) What can be done to shift the Phillips curve to the left?

The US unemployment rate (actual unemployment, u) is 8.4 percent, while the natural rate of unemployment...

The US unemployment rate (actual unemployment, u) is 8.4 percent, while the natural rate of unemployment (nru) is 4.4 percent. (i) Using Okun's Law, compute the US current percentage GDP gap. Show your computation. (ii) State your answer in words, comparing actual to potential output. (iii) Is the US GDP gap positive or negative—and why? Note: "Okun’s Law Arthur Okun was the first macroeconomist to quantify the inverse relationship between the actual unemployment rate and the GDP gap. He noticed...

Question