economics hard MCQ

In modern macroeconomics, the NAIRU stands for the 'Non-Accelerating Inflation Rate of Unemployment'. What does this concept signify?

  1. The absolute lowest unemployment rate a country can ever achieve
  2. The specific threshold of unemployment below which inflation begins to rise persistently
  3. The rate of unemployment caused exclusively by technological automation
  4. The unemployment rate that guarantees zero inflation in the long run

Answer: The specific threshold of unemployment below which inflation begins to rise persistently

NAIRU represents the structural floor of unemployment in an economy. If policymakers attempt to stimulate demand and push the actual unemployment rate below the NAIRU, the resulting labor shortages will drive up wages, which firms pass on as higher prices, leading to an accelerating wage-price spiral and sustained inflation.

Topic Macroeconomics - Unemployment
Exam Relevance UPSC Prelims, SSC CGL, Banking
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