Question

Suppose that the given economy has 100000 currently working full time, 75000 are working part time but would like to work full time, 25000 are actively looking for work but not currently working, and 10000 would like to work.

If the natural rate of unemployment is 10% what is the cyclical rate of unemployment? Round your answer to two decimal places.

Answer 1

Cyclical rate of unemployment is the actual rate of unemployment - natural rate of unemployment.

Now actual rate of unemployment = Number of people unemployed / By the labor force.

Labor force consists of people working plus people looking for work/unemployed.

Thus 100,000 + 75,000 + 25,000. = 200,000 are in the labor force. 10,000 would like to work but are not in the labor force as they are not looking for a job.

Thus actual unemployment rate =( 25,000 / 200,000 ) * 100 = 12.5%

Thus the cyclical rate of unemployment = 12.5% - 10% = 2.50%