a. Unemployment is the situation were large number of supply of labour with low demand for labour in the labour market. There are different type of unemployment exists in the economy, thus most of the government tried to make proper policies to reduce the unemployment rate in the economy. According to neoclassical theory, unemployment is occurred due to the weakness of labour market under perfect competition. Greater labour market flexibility is the aim of most of the neo classical theories. The unemployment will occur in the economy due to huge fall in aggregate demand also. The huge fall in aggregate demand will lead to recession in the economy; this will increase the level of unemployment. Imperfections in the labour market, fall in the supply of goods and services and high growth of population are the other major causes of unemployment according to the neo classical. Proper flexibility in the labour market will help the workers to make decisions on the basis of the market conditions. This will adjust with respect to aggregate demand ad aggregate supply.
b. Philips curve depicts the negative relation between unemployment and inflation rate. According to the profounder, the unemployment will decrease with respect to increasing the general price level. Thus the economy will be in a better stand at equilibrium between unemployment and inflation rate. In long run, this Philips curve becomes vertical. In long run, there is no trade off between unemployment and inflation. The government policies in long run will ensure natural rate of unemployment.
c. NAIRU is non accelerating inflation rate of unemployment, which is lower than the inflation level and there is higher level of expectation to rise this one. NAIRU is the natural rate and it will exist in every economy. Most of the policies were formulated on the basis of this rate. NAIRU can be related with the short run Philips curve. This is because of that in short run, there is a trade off exist between inflation and unemployment. The inflation will be increase at a point where the unemployment started to fall down. This is because of the increasing demand for goods and services. Thus the economy will move toward full capacity. Natural rate of unemployment is the low level of unemployment which exists in every economy. At this lowest point the unemployment rate is stable. Natural rate of unemployment is the summation of frictional unemployment and structural unemployment. According to Keynesian theories, NAIRU is the level of unemployment where the monetary policy will be stable. This will also show the relation between unemployment and inflation. Most of the central bank policies were related and depended towards these policies.
d. According to OECD, NAIRU is the unemployment rate which converges during the temporary changes in the level of supply. Under these dynamic changes the inflation will be adjusted completely. The inflation will be stabilised under the NAIRU. The major criticism regarding the NAIRU is that there is no permanent relation exists between unemployment and inflation rate in both short run and long run. The correlation between these variables with real variables and the nominal variables where not depicted in this theory. The disagreements exist during the calculation of NAIRU will lead to mismatch in the policies by the central bank and the state governments.