Question

a. Explain the natural rate of unemployment. (3 marks) b. Discuss in detail any two government policies that can reduce the natural rate of unemployment? In your answer, you need to explain how these policies address the underlying causes of the natural rate of unemployment. (7 marks)

Answer 1

The natural rate of unemployment occurs at which the expected and actual inflation rate is equal; thus can be defined as the unemployment rate present when the rate of inflation is neither rising nor falling.

The job training and employment subsidies for job placement are likely to have the effect of reducing the natural rate of unemployment. Job training can help mitigate the problems of structural unemployment caused due to the skills are no longer useful in the economy. In similar way tax breaks, subsidies and less regulations can reduce the frictional unemployment by reducing the time spent in the job-search process