The Unemployment Rate - Essay Example

If the Bureau of Labor Statistics had considered discouraged workers unemployed, the official unemployment rate would have been 8.13%.
The discrepancy between my answers to questions #1 and #2 is that the unemployment rate of 7.19% for question #1 is without considering discouraged workers as unemployed and the unemployment rate of 8.13% for question #2 is after considering discouraged workers as unemployed.

1. Explain, in your own words, the concept of a “natural rate” of unemployment.
Workers who spend time looking for employment are engaged in the job search. This type of unemployment is the case of frictional employment, which is due to the time workers spend in the job search. This exists even when the number of people seeking jobs is equal to the number of jobs being offered, that is it does not mean that there is a surplus of labor. However, unemployment, when there are more people seeking jobs in a labor market than there are jobs available at the current wage, is called structural unemployment.
Both frictional and structural unemployment is inevitable in any economy. Thus, a certain amount of unemployment is normal, which is called the natural rate of unemployment. The natural rate of unemployment is the unemployment rate that arises from the effects of frictional plus structural unemployment. The actual unemployment rate fluctuates around the natural rate of unemployment. The natural rate of unemployment is calculated as:

Natural employment = Frictional employment + Structural employment
2. Perhaps tongue-in-cheek, some economists occasionally distinguish between “good” inflation and “bad” inflation. Speculate as to why these economists might see some inflations as superior to others.
Inflation is defined as the rate at which the general level of price of goods and services is rising, and, subsequently, purchasing power is falling.
Inflation is a sign that an economy is growing or expanding. The lack of inflation is an indicator that the economy is weakening. Small inflation is just as bad as high inflation. Thus, it is not easy to label inflation as good or bad, and it depends on the overall economy and individual personal thinking.

When an economy grows or expands (boom) the price level of goods and services rises. This effectively increases inflation. Since, the economy is growing people have more money to purchase and therefore, the purchasing power of individuals increases comparatively. This type of inflation is generally referred to as “good” inflation. If an economy continues to grow, there comes to a point (peak), when the inflation is too high and government needs to do something to lower it. This inflation can be referred to as “bad” inflation. When an economy starts to weaken (recession) the price level of goods and services falls and thus inflation also falls. Now, people purchasing power increases, however, there is not enough good and services to fulfill this. This type of inflation is referred to as “bad” inflation. Read More