Answer to Question #201179 in Economics of Enterprise for Rin

Question

How will the COVID-19 pandemic crisis affect the natural rate of unemployment? Explain the reasoning behind your answer.

Answer 1

The rate of unemployment will increase above the natural rate of unemployment.

Natural rate of unemployment is the lowest rate of unemployment in an economy when inflation is stable. The pandemic has led to an economic distress where economic activities have slowed down leading to closure of firms. This has led to loss of jobs to the employees in those firms.