Problem Set Unemployment 1. Assume an economy has 10 people who are unemployed a

Question

Problem Set Unemployment

1. Assume an economy has 10 people who are unemployed and 90 who are employed. What would be the unemployment rate?

If 1 person becomes marginally attached or a discouraged worker what is the new unemployment rate in the economy? Did unemployment go up or go down? Does this understate or overstate unemployment?

2) Suppose 140,000 people are employed, 15,000 are unemployed, and 50,000 people are out of the labor force, calculate the labor force participation rate.

3) Suppose 140,000 people are employed, 15,000 people are unemployed, the working-age population is 250,000, and 50,000 people are out of the labor force. Calculate the unemployment rate.

4) Describe the three types of unemployment and give an example of each

5) What is the natural rate of unemployment, and what types of unemployment constitute the natural rate of unemployment? What is another term used for natural unemployment rate according to videos?

Note: Please help our students and answer all 5 above questions with details

Explanation / Answer

1. Unemployment rate= no.of unemployees/labour force.

Where labour force= employed + unemployed people

So , unemployment rate= [10/(10+90) ]*100

= 10%

When 1 person becomes marginally attached( i.e he is not part of labour force and unemployed people)then labour force reduces to 99 (100-1) and unemployed persons become 9(10-1)

So new unemployment rate = [9/99]*100. = 9.09%

So because of this unemployment rate reduced from 10% to 9.09% . Unemployment reduced.

2. Labour force participation rate = labour force/eligible population.

Where labour force = employed + unemployed people. = 140000+ 15000. = 155000 eligible population = labour force+ people out of labour force. =155000+50000=205000. So participation rate= 155000/205000= .7561 or 75.6%

3. Unemployment rate= unemployed/labour force. Where unemployed =15000 and labour force= eligible population- people out of labour force=250000-50000= 200000

So unemployment rate = [15000/200000]*100. = 7.5%

4. There are three major unemployment's , they are a. Cyclical unemployment : it is caused due to ups and downs in economy i.e different economic stages . Example - unemployment caused due to recession in software feild .

b.Frictional unemployment: it occurs because of the normal turnover in the labor market and the time it takes for workers to find new jobs. Example - unemployment caused before I got a new job.

C. Structural unemployment : it is caused due to lack of certain skills which are required to do that job. Example- unemployment caused when a person is not hired for some technical job as he is uneducated.

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