4.3.1: Understanding the Natural Rate of Unemployment

According to the natural rate of unemployment theory, an increase in aggregate demand may temporarily reduce unemployment, but when people adjust their expectations of inflation, the unemployment rate returns to the natural rate. Select one: True False

True

The main characteristic of the natural rate of unemployment is that it Select one: a. is permanently fixed. b. changes over time. c. is automatically adjusted. d. is not measurable.

b

The natural rate of unemployment is Select one: a. set by Congress. b. the rate of unemployment at which an economy operates efficiently. c. the inflation-adjusted rate of unemployment. d. zero percent. Check

b

The concept of the natural rate of unemployment is the idea that the economy is stable at Select one: a. the short-run natural rate of unemployment. b. the long-run natural rate of unemployment. c. the short-run rate of inflation. d. the long-run rate of inflation.

b. The natural rate of unemployment is the long-run rate of unemployment that does not cause inflation. Many economists believe that the economy is unstable in the short run but in the long run, inflation is zero at the natural rate of unemployment.

When the economy is at the natural rate of unemployment there is no Select one: a. frictional unemployment. b. cyclical unemployment. c. structural unemployment. d. seasonal unemployment.

b. The natural rate of unemployment is the sum of frictional and structural unemployment. When the economy is operating at full capacity in the long run, it is not experiencing cycles. Therefore it has no cyclical unemployment. Correct

Supply shocks that cause an inward shift in the aggregate supply curve with aggregate demand remaining constant will Select one: a. permanently increase the natural rate of unemployment. b. permanently decrease the natural rate of unemployment. c. temporarily increase the natural rate of unemployment. d. temporarily decrease the natural rate of unemployment.

c

Which of the following would be a contributing factor to the decline of the natural rate of unemployment in the late 1990s and early part of the twenty-first century? Select one: a. Employees are working harder and for longer hours. b. Electronic technology has increased the efficiency of the economy. c. There have been few demands for wage increases. d. All of the above are contributing factors.

d. In the late 1990s, the natural rate of unemployment seems to have fallen from about 6% to something less than 4%. This phenomenon can be explained by the fact that employees are working longer hours and working harder and that electronic technology has increased efficiency and competition. There has also been a decline in labor union activism and very little pressure for increased wages. All of these reasons have contributed to the increased capacity of the economy and the decrease in the natural rate of unemployment.

The natural rate of unemployment theory argues that Select one: a. unemployment is always above the natural rate in the short run. b. unemployment is always below the natural rate in the short run. c. unemployment is always equal to the natural rate. d. in the long run, the unemployment rate returns to the natural rate.

d. The natural rate of unemployment theory is a long-run theory. According to the theory, unemployment always returns to its long-run "natural" rate or the rate at which the economy can efficiently use all its resources without causing inflation.