Natural Rate of Unemployment (NARU)

Discipline: Economics

Proposed by the American economist Milton Friedman (1912-1992), NARU refers to the rate of unemployment which occurs when all markets are in an equilibrium position.

The rate cannot be reduced by an increase in aggregate demand. Unemployment cannot be reduced below the natural rate of unemployment as this would result in accelerating inflation; hence, the natural rate is also referred to as the non-accelerating inflation rate of unemployment (NAIRU).

The vertical Phillips curve illustrates this situation.

Source:
M Friedman, 'The Role of Monetary Policy', American Economic Review vol. LVIII (March, 1968), 1-17

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