A Central Concept in Macroeconomics Is the Idea of the Natural

question 76

Essay

A central concept in macroeconomics is the idea of the natural rate of unemployment.Why does it make sense to define full employment to occur when the unemployment rate equals the natural rate of unemployment,instead of when the unemployment rate equals zero? Elaborate and explain carefully.

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Definitions:

Externalities

Costs or benefits arising from an economic activity that affect other parties who did not choose to incur that cost or benefit.

Prices

The amount of money required to purchase goods or services, serving as the consideration for the value of the goods or services being exchanged.

Supply and Demand

Supply and demand is a fundamental economic model that explains the interaction between the sellers of a resource and the buyers for that resource, determining its price and quantity in a market.

Allocation of Resources

The process of assigning available resources, or factors of production, to specific uses chosen among many possible and competing alternatives.