Assignment: Macroeconomics Questions - Essay Example

It should be noted that the impacts of natural rate of unemployment are felt in both healthy and poor economies. As Gwartney et al (2008, p.181) note, the major reason is that the movement of workers in the labor market results in frictional unemployment. Those workers seeking for better jobs or leaving jobs incase of displacement lead to unemployment as most of them fail to arrange for another job. Other people may also leave the labor force in certain economies due to personal reasons leading to frictional unemployment.

In such situations, the moving workers will eventually return into the economy as unemployed when they fail to secure the desired jobs until the secure a job. In another situation, structural unemployment can lead to natural rate of unemployment. The reason is that structural unemployment result in workers preferring specific aspects for specific jobs in certain markets. However, adjustments in worker skills and economic requirements will often break the balance between job skills and job availability.

This is clearly reflected in technological advancement that has continued to push workers to lower positions. Additionally, natural rate of unemployment may result from surplus unemployment as a consequence of labor unions and minimum wage regulations. In states or economies where minimum wage levels are set higher, there is high probability for unemployment to occur. The reason is that employers will always trim their worker forces in order to level the salaries with regulation requirements and at the same time maintain their margins.

Generally, an economy experiencing natural rate of unemployment means that the labor market lacks involuntary unemployment. That is all people comfortable with the existing wage rates are working. The market remains with limited voluntary employment since some people are unemployed because they seek to worker for better paying jobs or working conditions. Hence, natural rate of unemployment is a disputed concept during the labor market equilibrium and when unemployment adjusts according to price inflation and real wages.

However, the concept stands as long as the labor market behaves like other markets or is able to clear at a stable price. Question 5.4 In an economic perspective, good inflation will occur in case of aggregate-supply-caused inflation (Eagle & Domian, 2003). This happens when aggregate demand does not change concurrently with nominal contracts. Now, if we consider a situation where only a single consumption product exists in a closed economy, this presumption can be explained clearly. In such a case people will use the entire product because it cannot be stored.

In addition, manufacturers of the product will be characterized by aggregate levels of labor required. These manufacturers will be in a position to maximize profits under the existing conditions of real land and wage rate. When firms’ productivity is promoted more than expected, the conditions will be higher. On another hand, when the conditions are established prior to firms’ production, the contracts ideal for proficient consumption allocation will dynamically adjust according to productivity.

The adjustment in ideal contracts occurs as a result of good inflation when nominal aggregate