B Why would you expect the inflation rate to accelerate if...

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Lauren Mason Midterm Macro Economics 1. A. Full employment occurs when there are enough jobs for everyone who wants to work at current wage levels. There can be people who want to work and are unemployed, and still have the condition of full employment, if the number of job vacancies matches the number of unemployed people who want to. At full employment, frictional and structural unemployment exist, but cyclical unemployment should not. Frictional unemployment refers to people who are actively seeking work, interviewing and applying, and should find work quickly. Structural unemployment refers to people who are unemployed because they do not have the necessary skills to be employed where there are job vacancies. Cyclical unemployment means there are more job seekers than job vacancies. At full employment, unemployment is at the lowest rate that can be sustained without accelerating the inflation rate. That rate, NAIRU, or the natural rate of unemployment, has fluctuated but is thought be occur at around 5%-4.7%. The most recent unemployment rate in the US, with data taken in Dec. 2014, was 5.6%This means that the US is currently not at full employment and some form of cyclical unemployment probably exists. Some economists might argue that full employment can exist at higher levels up to 6% but in most cases, 5.6% would be considered .6%-.9% above the natural rate of unemployment. B) Why would you expect the inflation rate to accelerate if the actual unemployment rate declined to a level lower than the "full employment" unemployment rate (NAIRU)? Explain your answer in a few sentences. What state of business cycles (such as recession, trough, recovery or boom) does the current US economy face, and why? 4pts
Lauren Mason Midterm

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