What Is the Natural Rate of Unemployment? Practice Questions

1. Which of the following isn’t factored into the natural unemployment rate? *

a. Frictional unemployment

b. Cyclical unemployment

c. Structural unemployment

d. Persistent, long-term unemployment

2. Why can’t we observe the natural unemployment rate? *

a. There are too many factors included in it to be able to keep track of all of them at once.

b. It changes too rapidly and unexpectedly to be observed.

c. Natural unemployment filters out the effects of business cycles, which are always to some extent present.

d. Natural unemployment assumes an ideal world of competitive markets and rational actors which is never fully accurate.

3. What does the natural unemployment rate tell us about fiscal and monetary policy? *

a. We should use expansionary fiscal and monetary policy when the natural unemployment rate is high.

b. We should use contractionary fiscal and monetary policy when the natural unemployment rate is high.

c. Monetary and fiscal policy are most effective when the natural unemployment rate is close to the actual unemployment rate.

d. Monetary and fiscal policy are least effective when the natural unemployment rate is close to the actual unemployment rate.