Full Employment vs Natural Rate of Unemployment
Full Employment and Natural Rate of Unemployment are two Unemployment & Inflation concepts in AP Economics that students often mix up. In short: full employment is full employment is the level of employment where there is no cyclical unemployment. Meanwhile, natural rate of unemployment is the natural rate of unemployment is the lowest level of unemployment that can be sustained without causing inflation to rise. Here is how they compare side by side.
Full employment is the level of employment where there is no cyclical unemployment.
Full employment occurs when the economy is operating at its potential output, and there is no cyclical unemployment. However, full employment does not mean that everyone has a job, as there will still be some frictional and structural unemployment. Policymakers often aim to achieve full employment while keeping inflation under control.
The natural rate of unemployment is the lowest level of unemployment that can be sustained without causing inflation to rise.
The natural rate of unemployment is the sum of frictional and structural unemployment. It represents the level of unemployment that exists even when the economy is operating at full capacity. If unemployment falls below the natural rate, it can lead to upward pressure on wages and prices, potentially causing inflation.
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