Criticisms
The natural rate hypothesis makes the fundamental assumption that there exists a unique equilibrium level of unemployment. Importantly, Milton Friedman himself never wrote down an explicit model of the natural rate (in his Nobel Lecture, he just uses the simple labor supply and demand model). Others have argued that there might be multiple equilibria: for example due to search externalities as in the Diamond coconut model or that there might exist a "natural range" of unemployment levels rather than a unique equilibrium.
Read more about this topic: Natural Rate Of Unemployment
Famous quotes containing the word criticisms:
“The sway of alcohol over mankind is unquestionably due to its power to stimulate the mystical faculties of human nature, usually crushed to earth by the cold facts and dry criticisms of the sober hour. Sobriety diminishes, discriminates, and says no; drunkenness expands, unites, and says yes.”
—William James (1842–1910)
“I have no concern with any economic criticisms of the communist system; I cannot enquire into whether the abolition of private property is expedient or advantageous. But I am able to recognize that the psychological premises on which the system is based are an untenable illusion. In abolishing private property we deprive the human love of aggression of one of its instruments ... but we have in no way altered the differences in power and influence which are misused by aggressiveness.”
—Sigmund Freud (1856–1939)