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  Natural Rate of Unemployment, Aggregate supply and philips curve

The Natural Rate of Unemployment:

In English the word natural usually carries strong positive connotations of normal and desirable, however a high natural rate of unemployment is a bad thing. Unemployment can’t be reduced below its natural rate without accelerating inflation, therefore a high natural rate means that expansionary fiscal and monetary policy are largely ineffective as tools to reduce unemployment.

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Legend: The natural rate of unemployment isn’t fixed. It differs substantially from decade to decade. Furthermore variations in the natural rate in the United States have been much smaller than variations in the natural rate in other countries.

Nowadays most estimates of the current U.S. natural rate of unemployment lie among 4.5 and 5.0 percent. However all agree that uncertainty about the level of the natural rate is substantial. As well as the natural rate has fluctuated substantially over the past two generations. Generally four sets of factors have powerful influence over the natural rate.

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