6. What is the difference between the natural rate of unemployment and cyclical unemployment? How are...

6. What is the difference between the natural rate of unemployment and cyclical unemployment? How are these related to structural and frictional unemployment? The President of the Minneapolis Federal Reserve Branch Bank has suggested the natural rate may have decreased in recent years. Offer some reasons why he may be correct.

Expert Solution

Difference between natural rate of unemployment and cyclical unemployment.

Natural rate of unemployment and cyclical rate of unemployment are considered as crucial components of economic growth structure.Natural rate of unemployment always indicate a positive healthy economic condition and cyclical unemployment is the variation between natural unemployment level and current unemployment level Both of these unemployment levels always exists in an economy and the major difference between these two are given below

Natural rate of unemployment indicate a positive economic growth condition ,at the same time cyclical umemployement indicate a negative growth condition

Natural rate of unemplyment mainly influenced by the supply side factor not by demand factor. Cyclical unemplyment rate is influenced by market business scenario.

Natural unemployment level is very minimal in its growth nature and caused by strucure of the work force and technological advancement. Cyclical unemplyment level is very destructive in nature occured due to the cyclical business reactions or economic ups and downs over time.

Natural rate of unemplyment consists only frictional and structural unemployment and not included cyclical unemployement .

The main reasons for the decrease in natural rate of unemployment level are:

* Rate of increase in the Gig economy and self employment level

* Increased monopsony power of employees

* labour market flexibility and high competion due to privatisation

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Rahul Sunny answered 1 year ago

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