After reading Principles of Macroeconomics, please discuss the concept of long run economic growth and the...
After reading Principles of Macroeconomics, please discuss the concept of long run economic growth and the natural rate of unemployment. Try to relate the concepts to your personal (all be it, perhaps prospective) life.
Homework Answers
Natural rate of unemployment is rate at which labor market is in equilibrium.
When country enters economic growth the firms tend to havr more money and as results pay more to workers. Since disposable incomes are higher the overall productivity gets reduced causing lesser revenues for firms in long run. And consequently firms tend to get bankrupt over time when wages keep rising and productivity is reduced.
As further effect, the firms tend to layoff workers to cut costs and hence this phenomenon increases the natural rate of unemployment in long run.
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