The following information is about a hypothetical economy: Full-time employed = 80
Part-time employed = 25
Unemployed = 15
Discouraged workers = 5
Members of underground economy = 6
Consumer Price Index = 110
Refer to the above information.If 6 members of the labour force are presently counted as part of the unemployed when in fact they are employed, the official unemployment rate is overstated by:
A)0 percentage points.
B)2 percentage points.
C)7.5 percentage points.
D)6 percentage points.

Question

Quizplus · Accepted Answer

The official unemployment rate is calculated as the number of unemployed divided by the total labor force. The total labor force is the sum of the full-time employed, part-time employed, unemployed, discouraged workers, and members of the underground economy. In this case, the total labor force is 80 + 25 + 15 + 5 + 6 = 131. The official unemployment rate is therefore 15 / 131 = 0.1145, or 11.45%. If 6 members of the labor force are presently counted as part of the unemployed when in fact they are employed, the true number of unemployed is 15 - 6 = 9. The true unemployment rate is therefore 9 / 131 = 0.0687, or 6.87%. The official unemployment rate is therefore overstated by 11.45% - 6.87% = 4.58 percentage points.

The Following Information Is About a Hypothetical Economy: Full-Time Employed