Define the natural rate of unemployment, Macroeconomics

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Define the Natural rate of unemployment

Natural rate of unemployment is defined as the sum of rates of structural, frictional, and classical unemployment (excluding cyclical unemployment). Natural rate of unemployment is sometimes known as voluntary unemployment and is supposed to be much more stable than the total unemployment rate. 

As cyclical unemployment is zero in a boom, natural rate of unemployment is equal to observed unemployment rate in a boom. In a recession, observed unemployment rate exceeds natural rate by cyclical unemployment rate.

We say that we have full employment when unemployment rate is equal to natural rate (and cyclical unemployment is zero). Remember that full employment doesn't imply that unemployment rate is zero.

 

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