<p>The natural rate of unemployment, a concept introduced by economist Milton Friedman, refers to the lowest rate of unemployment consistent with stable prices and sustainable economic growth. It is the rate of unemployment that exists when the labor market is in equilibrium, with no upward or downward pressure on prices.</p>

<h2>How It Works</h2>
<p>The natural rate of unemployment is influenced by various factors:</p>
<ul>
  <li><strong>Frictional unemployment</strong>: The time taken by workers to find jobs that match their skills.</li>
  <li><strong>Structural unemployment</strong>: The mismatch between the skills job seekers possess and those required by employers.</li>
  <li><strong>Involuntary unemployment</strong>: Workers who are willing and able to work but cannot find jobs.</li>
</ul>
<p>Government policies, such as minimum wage laws and unemployment benefits, can also impact the natural rate of unemployment.</p>

<h2>Why It Matters</h2>
<p>The natural rate of unemployment is a crucial concept for policymakers. It helps them understand the limits of monetary and fiscal policy in reducing unemployment. For instance, if the actual unemployment rate is below the natural rate, inflationary pressures may arise, as seen in the 1970s when the U.S. experienced <strong>stagflation</strong>.</p>