Question

Country A with a civilian population of 65 mil (all over age 16), has 48 mil employed and 5 mil unemployed persons, of which 1.2 mil is frictionally unemployed and another 2 mil structurally unemployed. a) What is the size of the labor force? ________ b) What is the actual unemployment rate? ________ c) What is the natural rate of unemployment? ____________ d) What is the cyclical unemployment? ______________ e) How many people are not in the labor force? ___________ f) Is this economy in a recession or a boom? ______________ g) Explain (The answer can be given in one sentence)

Answer 1

(a)

Labor force (mil) = Number employed + Number unemployed = 48 + 5

= 53

(b)

Unemployment rate = Number unemployed / Labor force = 5 / 53 = 0.0943

= 9.43%

(c)

Natural unemployment rate = (Frictionally unemployed + Structurally unemployed) / Labor force = (1.2 + 2) / 53 = 3.2 / 53

= 0.0604

= 6.04%

(d)

Cyclical unemployment (mil) = Number unemployed - (Frictionally unemployed + Structurally unemployed)

= 5 - (1.2 + 2) = 5 - 3.2

= 1.8

(e)

Not in labor force (mil) = Civilian population - Labor force

= 65 - 53

= 12

(f)

Economy is in recession.

(g)

When economy is in recession, cyclical unemployment exists, as it is in this case.