Chapter 8: Problem 22

What term describes the remaining level of unemployment that occurs even when the economy is healthy?

Short Answer

Expert verified

The term that describes the remaining level of unemployment that occurs even when the economy is healthy is the Natural Rate of Unemployment, which includes frictional and structural unemployment.

Step by step solution

1. Identifying the Type of Unemployment in Question

There are different types of unemployment, such as frictional, structural, and cyclical. In the context of this exercise, we need to identify which of these types of unemployment occur even when the economy is healthy.

2. Understanding Frictional Unemployment

Frictional unemployment occurs as people move between jobs, industries, or locations. It includes those who are looking for work due to various reasons such as searching for better opportunities, recent graduation, or workforce re-entry. For example, someone might quit their existing job in search of a better opportunity elsewhere, resulting in unemployment during the transition.

3. Understanding Structural Unemployment

Structural unemployment results from a mismatch between job seekers' skills and available job requirements. This type of unemployment can occur when industries decline or specific skills become less valuable due to technological advancements or changes in consumer demand. Workers in this category may need retraining or education to find suitable employment.

4. Understanding Cyclical Unemployment

Cyclical unemployment occurs due to fluctuations in economic activity, such as a recession or depression. When the economy is healthy, however, the level of cyclical unemployment will be minimal or nonexistent because there is enough demand for products and services to support employment.

5. Identifying the Unemployment Term in a Healthy Economy

In a healthy economy, frictional and structural unemployment are more likely to persist, while cyclical unemployment should be reduced to a minimum. The term that accurately describes the remaining level of unemployment in a healthy economy is the Natural Rate of Unemployment. The natural rate of unemployment comprises both frictional and structural unemployment.

Conclusion

The term that describes the remaining level of unemployment that occurs even when the economy is healthy is the Natural Rate of Unemployment. This rate of unemployment accounts for frictional and structural unemployment, which are unavoidable due to the nature of the labor market and changes in the economy.

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