What does the natural rate of unemployment indicate?

The natural rate of unemployment is a key concept in macroeconomics that represents the level of unemployment that occurs when the economy is in long-run equilibrium, specifically at full employment. This level of unemployment does not include cyclical unemployment, which is associated with economic downturns. Instead, it encompasses frictional and structural unemployment, reflecting the normal labor market turnover and the mismatch between workers’ skills and job requirements.

Identifying this rate helps economists understand how many people are unemployed due to reasons other than economic downturns, such as individuals temporarily between jobs or those whose skills do not match available positions. Thus, option B accurately captures this definition by stating that the natural rate of unemployment is the level at full employment while excluding cyclical factors.