The Natural Rate of Unemployment Exercise 1 Use the table below to answer the fo

Question

The Natural Rate of Unemployment Exercise 1 Use the table below to answer the following questions: Number of People in millions Labor Force Employed 157.3 tructurally unemploye 5.3 2.9 rictionally unemployed nstructions: Round your answers to 2 decimal places. o. Calculate the actual unemployment rate and the netural rate of unemployment for this economy Actual rate of unemployrment [ 785] % Natural rate of unemployment [-4745] % ssume that cyclical unemployment decreases by 1.7 million while structural unemployment increases by 0.5 million. Calculate the unemployment rate and the natural rate of unemployment for this economy % Actual rate of unemployment % Natural rate of unemployment

Explanation / Answer

3 Major Types of Unemployment
Structural Unemployment:
Occurs when changes in demand in an economy leads to an
increased need for particular skills and abilities from workers,
and causes other skills and abilities to become unneeded or
obsolete. An example of this is when automation replaces
physical labor.
Frictional Unemployment:
Occurs when a person chooses to leave their present job to find
another job, or is searching for a job for the first time, or is
searching for a job following a period of not being in the
workforce.
Cyclical Unemployment:

Occurs when market demand for a certain goods or services

decreases, and results in decreased production until market
demand increases. This causes fewer workers to be needed to
produce a good or service until demand increases. An example
of this is when during a recession consumers pull back on major
purchases like cars, boats, or homes.

How to Calculate Unemployment
Unemployment Rate =
Total Unemployed Workers / Total Workforce
Total Unemployed Workers
People who are not working,
and are actively looking for a
job.
Total Workforce
All people who are either
looking for work or are
working in an economy.
Not Included:
People who give up looking for a job.
People who choose not to work.
People who are full-time students.
People who are disabled.
People who are under age 16.
People who are serving in the armed forces.
People who are institutionalized.
People who are incarcerated.

Part A:

Total unemployed= 13.4

Total labour force= 170.7

Natural unemployment= 8.1

Therefore actual unemployment rate = 13.4/170.7 = 7.85%

And natural unemployment rate = 8.1/170.7 = 4.745%

Part B:

Total labout force = 169.5

Total unemployed = 12.3

Total naturally unemployed = 8.6

Therefore actual unemplyment rate = 12.3/169.5 = 7.2567

And natural unemployment rate = 8.6/169.5 = 5.0737

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