Question

The following question can be answered using this information about Perry, Georgia: Initially, Uobserved = 7% Ufrictional = 2% Useasonal = 1% Ustructural = 3% What can we say about the economic situation in Perry?

a. The observed unemployment rate is lower than the natural rate of unemployment

b. Perry is experiencing an economic slowdown.

c. There are many discouraged workers

d. All of the above None of the above

Answer 1

We can observe that frictional unemployment rate is 2% and structural unemployment rate is 3%. The natural rate of unemployment is the sum of both these rate, that is 5%.

Now, clearly the observed rate of unemployment is 7% which is more than the natural rate of unemployment. Natural rate of unemployment is the unemployment rate which exists at full employment level of output.

This clearly points that the unemployment level is more than the rate that exists at  the full employment level . Thus, Perry is experiencing an economic slowdown.

Thus, (b) is the correct answer.