Question

If we are in long-run equilibrium, what sort of unemployment will exist? Is this unemployment bad?

Please be specific.

Answer 1

If we are in long-run equilibrium, what sort of unemployment will exist? Is this unemployment bad?

ANS:- In a situation of long run equilibrium, economy usually operate at its full potential. At such time there always exists a NATURAL RATE OF UNEMPLOYMENT in the economy.

It is believed that there can never be zero unemployment in the economy even in healthy economy. There also have a natural rate of unemployment . Natural rate of unemployment consists of Structural unemployment, frictional unemployment and cyclic unemployment.

There may be many reasons of this unemployment like technological change, a recession, decline of old industry etc.

Is this unemployment bad?

This type of unemployment is not of much concern as it is considered by many as 4%- 5 % of full employment. This is considered to be the lowest unemployment rate where inflation is stable.