Question

After several years of economic growth, would you expect the unemployment in an economy to be mainly cyclical or mainly due to the natural rate of unemployment? Why?

a) Mainly cyclical, as demand for labor increases
b) Mainly due to the natural rate, as the economy stabilizes
c) Both cyclical and natural rates would decrease
d) Cannot be determined

Answer 1

After several years of economic growth, the unemployment in an economy would be mainly due to the natural rate of unemployment, as there is still a certain level of unemployment even during times of economic growth.

Step-by-step explanation:

After several years of economic growth, the unemployment in an economy would be mainly due to the natural rate of unemployment. This is because during a period of economic growth, the demand for labor increases, leading to more job opportunities and a decreased unemployment rate. However, once the economy stabilizes and reaches full employment, there will still be a certain level of unemployment due to various factors such as frictional and structural unemployment, which are considered part of the natural rate of unemployment. Therefore, while there may still be some cyclical unemployment during periods of economic growth, the main reason for the unemployment in the economy would be the natural rate of unemployment.