1. Respond to a classmate's post?

Define the natural rate of unemployment (also known as full employment unemployment or NAIRU-Non Accelerating inflation rate of unemployment).

NAIRU is related to the short-run Phillips Curve. It has to do with the relationship between unemployment and inflation or rising prices. If unemployment rises, inflation falls. If unemployment falls, there will come a point, where inflation starts to increase. The natural rate of unemployment is the average rate of employment that happens around which the economy fluctuates. In other words it is the lowest possible unemployment rate in an economy without creating inflation. Therefore NAIRU is consistent with maintaining stable inflation.

What is the difference between the unemployment rate and the natural rate of unemployment (NAIRU)?

The unemployment rate is the percentage of unemployed workers in the labor force. Further, it is used to help policy makers achieve their goal of lowering the rate of unemployment without fueling excessive increase in wage growth and inflation. It is the lowest possible unemployment rate in the economy that in which the economy is at an equilibrium is considered the NAIRU.

What is the current natural rate of unemployment? How did it change in the past 30 years? What kinds of factors affect the natural rate of unemployment?

The current natural rate of unemployment is ~4.4%. The natural rate has gradually decreased in the last 30 years. The natural rate of unemployment include frictional (eg. ability of job information) and structural unemployment (eg. a worker who is unable to get a job because they don't have the right skills). Other factors could be; level of benefits (eg. generous benefits may discourage workers from taking jobs at the existing wage rate), flexibility of the labor market (eg. power trade unions may be able to restrict the supply of labor to certain markets), and a recession which history has caused a rise in unemployment caused by a recession (as seen in 2020 when unemployment rates skyrocketed) thus increasing the natural rate of employment to increase (they may become unemployed for a long time and become deskilled and unmotivated and less able to get a new job).

Considering that the current unemployment rate is 4.6% (October 2021), what kind of policies should the government and the Fed implement? (You can use the Keynesian or the Classical-Supply side approach) How do you compare your recommendation to the current government's policies?

An expansionary monetary policy supported by the Keynesian model would help boost aggregate demand and this would help reduce unemployment. Beyond monetary policy, policy could look at government policies that directly influence the NAIRU. This could be in the form of policies to reduce structural unemployment by providing government training to those who are structurally unemployed, or helping relocate those people to areas where jobs exist orspending money oninstitutionto help those get their education).