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Why did the natural rate of unemployment fall?

Why did the natural rate of unemployment fall?

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Answer #1

The natural rate of unemployment takes place when there is no cyclical employment but only structural and frictional unemployment. Therefore, natural unemployment happens when the economy is in equilibrium i.e. the real output is equal to the potential output.

The natural rate of unemployment takes place when the real output is higher than the potential output i.e. there is an inflationary gap in the economy. When there is an in the inflationary gap, resources are over-employed; so, the unemployment rate is lower than the natural rate of unemployment.

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