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1. Why is it hard to determine what, exactly, is the natural rate of unemployment?

The natural rate of unemployment is determined by frictions and structural rigidities in the labor market. We can also call the natural rate of unemployment “non-accelerating inflation rate of unemployment”. Each job has their own status such as working time, wages working conditions, required skills, location, etc. Employment occurs when someone match such positions. But, some people may not have a job; some jobs may not be fulfilled. Some people do not want to have a job or seek for jobs. Then, unemployment occurs. The situation changes in the economy will also change the natural rate of unemployment. The unemployment rate depends on how quick a vacancy can be filled as well.

After the economic crisis, the natural rate of unemployment raised rapidly. Due to some jobs were eliminated, people lost their jobs. Those people keep seeking for jobs for duration of time, if they cannot find one, they may stop seeking. This is the example that why it is hard to determine the natural rate of unemployment exactly.

2. What are some ways that a central bank can gain credibility?

There are many rules to that central bank can gain credibility. They can follow the rules that enforced by third party communities. They can build their credibility by retain their own policies, even if cost much money. Make the rules hard to change is one way to achieve this goal. High independence of central bank can improve the credibility as well. This can keep the inflation rate low. Changing central bankers’ incentives can gain credibility. For example, the head of some countries’ central bank must be replaced if inflation objects are not met.

However, Keynesians think that those stable rules are for some reason a risk for them to gain credibility, some rules may be unacceptable. If a specific rule is related to the current economy, the changes to the rule caused by some emergency situations could...