A central concept in macroeconomics is the idea of the natural rate of unemployment
Why does it make sense to define full employment to occur when the unemployment rate equals the natural rate of unemployment, instead of when the unemployment rate equals zero? Elaborate and explain carefully.
With a growing, dynamic economy where businesses expand and contract, technological change regularly occurs, and people enter and leave the labor market on a continual basis, zero percent unemployment is not possible nor desirable. Frictional unemployment and structural unemployment are normal parts of a healthy, growing economy. With frictional unemployment, people and firms have to search for one another and that takes time. With structural unemployment, technology changes and international competition cause people to have to retrain to match up with the evolving job requirements. Economists, consequently, consider full employment to occur when the only unemployment is frictional unemployment and structural unemployment.
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Consider a consumer who spends all income on only two goods: bread and wine. An extra loaf of bread would give the consumer 10 extra util, while an extra bottle of wine would give the consumer 60 extra utils. Bread costs 50ยข per loaf, and wine costs $6 per bottle. In this situation, the consumer:
a. could increase utility by buying more bread and less wine. b. could increase utility by purchasing more wine and less bread. c. has maximized utility and attained consumer equilibrium. d. is violating the law of diminishing marginal utility.
Unequal incomes arise from
a. discrimination. b. luck. c. different schooling. d. all of the above factors.