Question

The total working age population is 40 million, of which 13 million are employed and 6.2 million are unemployed. The labor force participation rate is? A 48% b40% c 54% D 8% E50%

Suppose the minimum wage decreases. Which of the following would occur?

A an increase in the real wage in the medium run

B a decrease in the interest rate in the medium run

C an increase in the aggregate price level in the medium run

D no change in the interest rate in the medium run

E more than one of the above

Answer 1

According to the ILO(International Labor Organisation) definition of labor force participation rate, it is defined as the number of persons in the labour force as a percentage of the working-age population. The labour force is the sum of the number of persons employed and the number of persons unemployed.

In our case,

Labor force = 13 + 6.2 = 19.2 million

Working age population = 40 million

labor force participation rate =

therefore option A = 48% is correct.

when minimum wage decreases it results in a decrease in the interest rate in the medium run. Because when minimum wages decrease it results in decrease in aggregate demand and hence lower prices. to help stimulate the economy and prevent deflationary cycle the central bank decreases the interest rate. Therefore option B is correct.