When will the natural rate of unemployment and the NAIRU differ? When will they

Question

When will the natural rate of unemployment and the NAIRU differ? When will they be the same?

a. They will differ in the short run because the natural rate tends to be more volatile in the the short run; they are the same in the long run.

b. They will differ in the long run because the natural rate tends to be more volatile in the the long run; they are the same in the short run.

c. They differ in the short run because the NAIRU tends to be more volatile in the short run; they are the same in the long run.

d. They differ in the long run because the NAIRU tends to be more volatile in the long run' they are the same in the short run.

Explanation / Answer

a. They will differ in the short run because the natural rate tends to be more volatile in the the short run; they are the same in the long run.

Reason-

The natural rate is the unemployment rate that would be observed once short-run cyclical factors have played themselves out. Because wages and prices adjust sluggishly, the natural rate can be viewed as the unemployment rate when wages have had time to adjust to balance labor demand and supply.

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