Please Help me with this question?

Question

1. Why do economists refer to the economy as "fully employed" even when there is measured unemployment as high as 4.5% -5 % ?

2. 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.

Answer 1

1.this is natural rate of employment, essentially natural unemployment is frictional unemployment where some people leaving jobs have'nt found jobs yet and fewer people found jobs, such people will constitute the job search reservoir. various factors affect this rate eg. market condns., technology, unemployment insurance.....

2.note that only Nominal G.d.p. is increasing since infrastructure or say raw materials or entrepreneurship or whatever factor was involved in fixing rhis rate, and there r various ineficiencies in employing one factor beyond optimum rate, G.d.p. does not increase beyond max. full employment Gdp(else the rate would hav been lower, of course); result--inflation. in general also employment is inversely variant with inflation, phillips law explained by dynamics of wage inflation........... but the 1st part is more apt sp for this answer, in case u get interstin variety of answers and r misled by vol...,luck

Answer 2

1)  "Fully employed" means that everyone who wants work can find work.  There will always be some people in the economy who do not want to work for a variety of reasons.  Economists move the "fully employed" percentage around some but usually in the 4-6% range.

2)  If more people work there will be more people making money.  More people then will want to be consumers and spend that money.  Greater demand = higher prices = inflation.