The unemployment rate that can be pushed below the natural rate, but only in the short run and not without inflation, is described by which pair?

• A. Frictional; Structural
• B. Natural; Cyclical
• C. Measured; Natural
• D. Cyclical; Frictional

Answer: (C)

The key idea is the distinction between the rate you actually observe (measured unemployment) and the long-run benchmark (the natural rate) and how short-run demand shifts can pull the observed rate below that benchmark, but only temporarily and with inflation.

In the short run, a booming economy can reduce unemployment below the natural rate, but this won’t be sustainable because inflation tends to rise as employers bid up wages and prices. The unemployment rate you see in the data—the measured rate—can dip below the natural rate during such booms, while the natural rate remains the long-run reference level at which only frictional and structural unemployment exist. That’s why the pair that best describes this situation is measured unemployment relative to the natural rate: measured; natural.

The other pairs describe the causes or components of unemployment rather than the relationship between the observed rate and the long-run benchmark.