You have been hired to determine if unemployment is running

You have been hired to determine if unemployment is running too high. First you must determine the natural rate of unemployment. You have been provided the data in the table below. Frictional unemployment 2% Structural unemployment 1% Cyclical unemployment 1% Using the data above, determine the natural rate of unemployment. The natural rate of unemployment is

Solution

Natural rate of unemployment = 2%+1% = 3% Cyclical unemployment is not counted as part of the natural rate as it occurs when an economy is in recession