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Q54 (CDS-II/2018) Economy › Growth, Development, Poverty & Employment › Macroeconomic indicators Answer Verified

The natural rate of unemployment hypothesis was advocated by

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Your answer: —  Â·  Correct: A
Explanation

The natural rate of unemployment hypothesis was famously advocated by Milton Friedman. He introduced the concept during his 1968 Presidential Address to the American Economic Association [1]. Friedman argued that there is no long-run trade-off between inflation and unemployment, a direct challenge to the then-prevailing interpretation of the Phillips Curve. According to this hypothesis, while monetary policy might induce transitory deviations, unemployment eventually returns to its 'natural' rate determined by the microeconomic structure of labor markets and institutional features [2]. This rate represents the level of unemployment consistent with aggregate production at its long-run level, where labor and resource markets are in equilibrium. While Edmund Phelps independently developed similar ideas around the same time, the specific term and its primary advocacy are attributed to Friedman [2]. A.W. Phillips, conversely, is known for the original Phillips Curve describing the inverse relationship between inflation and unemployment.

Sources

  1. [1] https://en.wikipedia.org/wiki/Natural_rate_of_unemployment
  2. [2] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 4: Inflation > PHILLIPS CURVE > p. 71
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