The natural rate of unemployment is understood to be:

The natural rate of unemployment refers to the level of unemployment that exists in an economy when it is at full potential, accounting for frictional and structural unemployment but not cyclical unemployment. This means that it is the rate of unemployment where the economy is effectively utilizing its resources, and there are enough jobs for those who are actively looking for work, considering that some unemployment is always present due to transitions in the labor market.

Frictional unemployment occurs as individuals transition between jobs or enter the workforce for the first time. Structural unemployment arises from changes in the economy that create a mismatch between skills and job requirements. The natural rate of unemployment does not factor in cyclical unemployment, which occurs during downturns in the economic cycle, as it specifically represents a healthy labor market devoid of economic fluctuations.

Thus, the correct understanding of the natural rate of unemployment is that it indicates a point where there is no cyclical unemployment, meaning the economy is optimally functioning and only experiencing unavoidable types of unemployment.