What is the NAIRU concept primarily concerned with?

The NAIRU, or Non-Accelerating Inflation Rate of Unemployment, is a key concept in macroeconomics that establishes a relationship between unemployment and inflation. Specifically, it refers to the level of unemployment at which inflation remains stable, meaning it does not accelerate. Essentially, when unemployment is at the NAIRU, the economy is considered to be at full employment, and the forces of demand and supply are in balance, preventing inflation from rising or falling.

If unemployment falls below this threshold, it can lead to increased demand for labor, which may result in wage increases that push production costs higher, subsequently leading to rising inflation. Conversely, if unemployment is above the NAIRU, it typically indicates slack in the economy and weaker wage pressures, which can keep inflation low or even lead to deflation.

The other concepts presented, although related to economic conditions, do not accurately encapsulate the specific meaning of NAIRU. The concern with high inflation rates, low unemployment, and money supply changes deal with broader economic phenomena but do not define the NAIRU’s critical aspect of achieving stable inflation through a particular unemployment rate.