Question

In your own words, briefly explain the distinctions between the terms “unemployment rate”, “natural rate of unemployment” and “cyclical unemployment rate”.

Answer 1

Unemployment rate

The percentage of number of unemployed or jobless workers of the entire labour crew is known as the unemployment rate . Both the employed and unemployed workers are comprised in the labour crew . If a worker does not work presently , he is considered as unemployed . Unemployment rate is written in terms of percentage .

unemployment rate = ( number of unemployed people / labour force ) × 100

Natural rate of unemployment

Natural rate of unemployment means the unemployment rate is minimised . It ensure full employment that doesn't mean it makes zero unemployment . It reduces the unemployment rate . People who were unemployed due to some problems like lack of skills and experience will get a chance of employment . It is a scenario where the unemployment rate of a economy will become lowest . The unemployment rate is stable .

Cyclical unemployment rate

We get Cyclic unemployment rate , when we subtract natural unemployment rate from current unemployment rate . When the economy's growth is high , the cyclical unemployment rate is low , whereas the economy's growth started to reduce , it increases the cyclical unemployment rate . Main reason for unemployment in an economy is cyclical unemployment .

cyclical unemployment rate = ( current unemployment rate - natural unemployment rate )