Question

If the natural rate of unemployment is 5% and the actual rate of unemployment is 5.5%, then by definition there is:

cyclical unemployment of 0.5% of the labor force

frictional unemployment of 0.5% of the labor force

cyclical unemployment of -0.5% of the labor force

structural unemployment of 0.5% of the labor force

Answer 1

Cyclical Unemployment is the unemployment caused due to changes in business cycles like a recession.

Cyclical Unemployment = Actual rate of unemployment - Natural rate of unemployment

Given,

Natural rate of unemployment = 5% , Actual rate of unemployment = 5.5%

Putting the given values in the above equation, we get

Cyclical Unemployment = 5.5 - 5 = 0.5

Cyclical Unemployment = 0.5%

Hence, the correct answer is the first option i.e. cyclical unemployment of 0.5% of labour force.