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Q. 20

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Economics Today
Found in: Page 396

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Short Answer

Take a look at panel (b) of Figure 17-4, and suppose that the economy initially operates at point A, at which the inflation rate is 0 percent and the unemployment rate is 6 percent, which is the natural rate of unemployment. Then the inflation rate increases to 3 percent. Does reduced cyclical, frictional, or structural unemployment account for the resulting decrease in the unemployment rate at point B ? Explain briefly.

High (or positive) inflation rates tend to be amid low unemployment rates (as at B)

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Step by Step Solution

Step 1: Introduction

The frictional unemployment, commonly known as biological job loss, is the lowest jobless rate caused by genuine or spontaneous economic realities. Natural unemployment represents the amount of persons who are unemployed as a byproduct of working army's structure, like those who were superseded by tech or who lack the basic means to find job.

Step 2: Explanation

  • If we glance at both increases and reduces in aggregate demand, we see that prime inflation rates tend to be related to low unemployment rates (as at B )
  • The economy initially operates at point localid="1652099847437" A, at which the inflation rate is localid="1652099850660" 0 percent and the unemployment rate is localid="1652099854565" 6 percent, which is the natural rate of unemployment. Inflation rate increases to localid="1652099856770" 3 percent.
  • Which low (or negative) inflation rates tend to be amid high unemployment rates (as at C).

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