<P> The natural rate of unemployment is a concept of economic activity developed in particular by Milton Friedman and Edmund Phelps in the 1960s, both recipients of the Nobel prize in economics . In both cases, the development of the concept is cited as a main motivation behind the prize . It represents the hypothetical unemployment rate consistent with aggregate production being at the "long - run" level . This level is consistent with aggregate production in the absence of various temporary frictions such as incomplete price adjustment in labor and goods markets . The natural rate of unemployment therefore corresponds to the unemployment rate prevailing under a classical view of determination of activity . It is mainly determined by the economy's supply side, and hence production possibilities and economic institutions . If these institutional features involve permanent mismatches in the labor market or real wage rigidities, the natural rate of unemployment may feature involuntary unemployment . The natural rate of unemployment is a combination of frictional and structural unemployment that persists in an efficient, expanding economy when labor and resource markets are in equilibrium . </P> <P> Occurrence of disturbances (e.g., cyclical shifts in investment sentiments) will cause actual unemployment to continuously deviate from the natural rate, and be partly determined by aggregate demand factors as under a Keynesian view of output determination . The policy implication is that the natural rate of unemployment cannot permanently be reduced by demand management policies (including monetary policy), but that such policies can play a role in stabilizing variations in actual unemployment . Reductions in the natural rate of unemployment must, according to the concept, be achieved through structural policies directed towards an economy's supply side . According to multiple surveys, two - thirds to three - quarters of economists generally agree with the statement, "There is a natural rate of unemployment to which the economy tends in the long run ." </P>

When does an unemployment rate becomes the natural unemployment rate
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