Canadian Securities Course (CSC) Practice Exam

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What is the natural unemployment rate?

  1. The rate when the economy is booming

  2. The rate when the economy is in recession

  3. The rate when the economy is at full employment

  4. The rate when the economy is experiencing deflation

The correct answer is: The rate when the economy is at full employment

The natural unemployment rate is the unemployment rate that exists when the economy is at full employment, meaning that most people who want to work are able to find employment. This rate accounts for structural and frictional unemployment, but not cyclical unemployment. Option A is incorrect because the economy can still be booming while the natural unemployment rate remains steady. Similarly, option B is incorrect because the economy can be in recession while the natural unemployment rate remains constant. Finally, option D is incorrect because the natural unemployment rate focuses on employment levels, not prices.

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