Question

Question 12 Suppose an economy has 20,000 people who are not working but looking and available for work and 80,000 people who are working. a) What is its unemployment rate? b) Now suppose 10,000 of the people looking for work get discouraged and give up their searches. What is its unemployment rate now? To the Tutor: Please show your formulas and calculations. Be clear and explanatory. Will be much appreciated. Thank you.

Answer 1

1. Unemployment Rate = (Number of Unemployed / Labor Force) * 100
2. Labor Force = Number of Employed + Number of Unemployed

a) Unemployed = 20,000. Employed = 80,000. Labor force = 20,000 + 80,000 = 100,000

Unemployment rate = (20,000/100,000) 100 =20%

b) Since 10,000 have given up looking for work, they will move out of the unemployed category and labor force.

Unemployed will be 20,000 - 10,000 = 10,000

Labor force =10,000 + 80,000 = 90,000

Unemployment rate = (10,000/90,000) 100 =11.11%