Full employment, Potential Output and Unemployment Rate.

May 14th, 2015
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York University
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The given statement is false because when unemployment rates decrease below a normal level of measurement, workers in the community have potential increase in their work demand and they request for higher and increased wage rates.

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Full employment, Potential Output and Unemployment Rate1- Agree or disagree with each of the following statements and explain your answer.a) The economy cannot be considered fully employed until measured unemployment is less than 1% of the labor force.The given statement is false because when unemployment rates decrease below a normal level of measurement, workers in the community have potential increase in their work demand and they request for higher and increased wage rates. This increased rates of salaries and wages have instant impact on inflation and causes the inflation rates to rise which leads towards unemployment of more people because of inabilities of the employers to pay for such rates. b) Is possible for an economy to operate for a time with an unemployment rate less that the "natural" unemployment rate. (Also known as NAIRU, the non-accelerating inflation rate of unemployment)The statement is true because it is asking for an economy to sustain at an unemployment rate lesser than natural unemployment rate (NAIRU) for a small time which means that economy have more jobs for employees than the full employment state where inflation does not affect the sy

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