EXERCISE 2 Consider the following simple scenario. A small country has 10 adults

Question

EXERCISE 2 Consider the following simple scenario. A small country has 10 adults of working age. Six of these adults currently are working: of the six, two are part-time workers, two have full-time jobs, and two are underemployed. Of the remaining four workers, two are actively seeking jobs, one is not working but is not actively applying for jobs because she does not believe there are jobs available, and the other is out of work due to the economy being in a recession a) Unemployment rate b) Structural unemployment rate c) Frictional unemployment rate d) Cyclical unemployment rate e) Natural rate of unemployment

Explanation / Answer

a. Unemployment rate:
= no of unemployed/ labor force
= (2/10)*100 =20 percent

b. No of non-available/labor force
= (1/10)*100 = 10 percent

c. The frictional unemployment rate is calculated by dividing the workers actively looking for jobs by the total labor force.
= (2/10)*100= 20 percent
d. No jobs because of recession/ labor force = (1/10)*100= 10 percent
e. Natural rate of unemployment = frictional + structural unemployment
= 10+20 =30 percent

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