With everything else held constant, if 5% of those considered to be frictionally unemployed found work while the number of people considered to be structurally unemployed increased by 5%, the natural rate of unemployment
A) increases by 10%.
B) decreases by 10%.
C) equals the unemployment rate.
D) does not change.

Question

Quizplus · Accepted Answer

The natural rate of unemployment is the sum of frictional and structural unemployment. Since the number of people who are frictionally unemployed decreased by 5%, this would decrease the natural rate of unemployment. However, the number of people who are structurally unemployed increased by 5%, which would increase the natural rate of unemployment. These two effects offset each other, resulting in no change in the natural rate of unemployment.

With Everything Else Held Constant, If 5% of Those Considered