Question

The US unemployment rate (actual unemployment, u) is 8.4 percent, while the natural rate of unemployment...

The US unemployment rate (actual unemployment, u) is 8.4 percent, while the natural rate of unemployment (nru) is 4.4 percent.

(i) How much of the (actual) unemployment is frictional and structural together? How much is cyclical? (ii) Explain your answers.

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Answer #1

1) Natural unemployment rate = Structural unemployment + Frictional unemployment

Thus,

Structural + Frictional unemployment = 4.4%

2) Cyclical unemployment = Actual rate - Natural rate

Cyclical unemployment = 8.4% - 4.4%

Cyclical unemployment = 4%

Explanation:

The natural rate of unemployment assumes a cyclical unemployment rate of 0% and adds up structural and frictional unemployment rate

The actual unemployment rate equals cyclical unemployment rate plus natural unemployment rate

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