Which of the following statements are true about the natural rate of unemployment ? (i) It is the…
"Only (i) and (iii) are true." The natural rate of unemployment is the non-cyclical equilibrium rate of unemployment (comprising frictional and structural unemployment)…
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Which of the following statements are true about the natural rate of unemployment ?
(i) It is the minimum unemployment rate resulting from real or voluntary economic forces.
(ii) Unemployment is not considered natural if it is cyclical, institutional or policy based unemployment.
(iii) Because of natural unemployment, 100 percent full employment is unattainable in an economy.
Answer and explanation
Correct answer B
"Only (i) and (iii) are true." The natural rate of unemployment is the non-cyclical equilibrium rate of unemployment (comprising frictional and structural unemployment) generated by real and voluntary economic forces when cyclical unemployment is absent (statement (i)). Because frictional job search and structural adjustments are always present, 100 percent employment of the labour force is unattainable even at full employment (statement (iii)). Statement (ii) is false because Milton Friedman's definition of the natural rate explicitly includes structural, institutional, and policy-induced labour-market features (such as minimum-wage laws and unions), excluding only cyclical unemployment.
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RPSC Assistant Professor (College Education)