Final answer:
The natural rate of unemployment includes frictional and structural unemployment. It represents the normal level of unemployment in a healthy economy that is not affected by economic downturns.
Step-by-step explanation:
The natural rate of unemployment includes both frictional unemployment and structural unemployment. Frictional unemployment occurs when individuals are temporarily unemployed while transitioning between jobs or when newly entering the workforce. Structural unemployment happens when there is a mismatch between the skills workers possess and the demands of the labor market, often due to technological changes or shifts in the economy.
Unlike cyclical unemployment, which is associated with economic downturns, the natural rate persists even when the economy is at its potential GDP. It represents the background level of unemployment that is not caused by the business cycle, but rather by the normal functioning of the labor market and other economic factors, including public policies related to hiring and job creation.
Therefore, the natural rate of unemployment includes both frictional and structural unemployment, and it's considered a marker of a healthy economy, despite the inevitability of some individuals being unemployed at any given time.