Question

The structural unemployment rate is 1.7 percent, the frictional unemployment rate is 2.6 percent, and the economy's current unemployment rate is 3.9 percent. The economy is in:_______.
a. long-run equilibrium.
b. a recessionary gap producing more than Natural Real GDP.
c. a recessionary gap producing less than Natural Real GDP.
d. an inflationary gap producing Natural Real GDP.
e. an inflationary gap producing more than Natural Real GDP.

Answer 1

Answer:

a. long-run equilibrium.

Explanation:

In the circumstances that the structural unemployment rate is 1.7 percent, the frictional unemployment rate is 2.6 percent, and the economy's current unemployment rate is 3.9 percent. Then we can say that the economy is in a long-run equilibrium.

Structural unemployment can be defined as an involuntary unemployment that arises as a result of the incompatibility between a worker's skills set and requisite skills an employer seeks from the workers or due to technological changes.

Frictional unemployment is a form of unemployment which is voluntary because employees which to change jobs or move to another better job.

Hence, the economy is in a long-run equilibrium because the rate of unemployment has become constant, thus, prices and wages will be adjusted in order to reach wages equilibrium level.