Chapter 13, Problem 7MCQ

To determine

The question requires us to determine the relationship between actual unemployment and natural unemployment.

Explanation of Solution

The sum of the natural and cyclical rates of unemployment gives the actual unemployment in an economy.

Cyclical unemployment is the divergence of the actual rate of unemployment from the natural rate of unemployment. Cyclical unemployment, as its name suggests, is the portion of unemployment that results from the changes in the business cycle, it falls during the recession while rises during expansion. Jobs that were lost during a recession will be replaced once the economy enters an expansion because during expansion, the production of goods and services increases, which causes employment to rise due to a rise in labor demand.

The unemployment rate that occurs from the effects of structural unemployment and frictional unemployment is considered the natural rate of unemployment.

Therefore, the actual rate of unemployment is the sum of natural and cyclical unemployment.

Option “b” is correct.