Question

In the country of Cardonia, the natural rate of unemployment is 3.5% according to the Ministry of Economics. Last year there was an economic slow down where the actual rate of unemployment increased to 4.5%. Assuming that the unemployment percentages are accurate for Cardonia, what is the likely outcome for the economy of Cardonia

Answer 1

Answer: Cardonia’s economy will grow until real GDP is equal to potential real GDP and the unemployment rate equals 3.5%.

Step-by-step explanation:

The natural rate of unemployment refers to the lowest unemployment rate in an economy whereby there is stability of inflation.

Based on the information given, if the unemployment percentages are accurate for Cardonia, then Cardonia’s economy will grow until real GDP is equal to potential real GDP and the unemployment rate equals 3.5%.