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Natural Rate of Unemployment

The natural rate of unemployment, also known as the non-accelerating inflation rate of unemployment (NAIRU), is the level of unemployment at which inflation is steady and there is no upward or downward pressure on prices. In other words, it is the rate of unemployment that is consistent with stable inflation.

The natural rate of unemployment is determined by a range of factors, including the structure of the labor market, the degree of wage rigidity, and the ability of workers to move between jobs. It is considered to be an important measure of the health of the labor market, as high levels of unemployment above the natural rate can indicate weakness in the economy, while low levels of unemployment below the natural rate can indicate overheating and upward pressure on inflation.

Estimating the natural rate of unemployment is difficult, as it is a theoretical concept and can only be estimated based on past data and current economic conditions. However, central banks and other policy makers often use this measure as a reference point in setting monetary policy, in order to maintain price stability and support economic growth.

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