<p>The Non-Accelerating Inflation Rate of Unemployment (NAIRU) is a macroeconomic concept that represents the unemployment rate at which inflation remains stable.</p>

<h2>How It Works</h2>
<p>The NAIRU is determined by the natural rate of unemployment, which is the unemployment rate that exists when the economy is at full employment. This rate is influenced by factors such as labor market frictions, job search, and wage bargaining. When the unemployment rate falls below the NAIRU, the economy is said to be operating at less than full employment, and inflation may accelerate. Conversely, when the unemployment rate exceeds the NAIRU, the economy is at full employment or overemployment, and inflation may decelerate.</p>
<p>The NAIRU is not a fixed value and can change over time due to factors such as changes in labor market institutions, demographics, and economic policies. Central banks use the NAIRU as a guide in setting monetary policy to achieve their inflation targets.</p>

<h2>Why It Matters</h2>
<p>The NAIRU is a crucial concept for understanding the trade-off between unemployment and inflation. For example, in the 1970s, many economies experienced stagflation, a period of high inflation and high unemployment. This was partly due to the NAIRU being higher than previously thought, as labor market institutions had changed, leading to a misjudgment of the appropriate level of aggregate demand.</p>