In a country with a working-age population of 22 million,16 million are employed,2 million are unemployed,and 1 million of the employed are working part-time,half of whom wish to work full-time.If 500,000 of those unemployed are cyclically unemployed,what is the natural unemployment rate?
A)11.1 percent
B)5.6 percent
C)8.3 percent
D)9.4 percent
E)none of the above

Question

Quizplus · Accepted Answer

The natural unemployment rate consists of structural unemployment and frictional unemployment.

Structural unemployment is the long-term unemployment caused by a mismatch between the skills of the workers and the requirements of the job market. This includes those who are working part-time but wish to work full-time.

Frictional unemployment is the short-term unemployment caused by the time delay between the workers becoming unemployed and finding a new job. This includes those who are currently unemployed but not cyclically unemployed.

Using this information, we can calculate the natural unemployment rate as follows:

Structural unemployment = 1 million x 0.5 = 0.5 million
Frictional unemployment = 2 million - 0.5 million = 1.5 million
Total natural unemployment = 0.5 million + 1.5 million = 2 million

Therefore, the natural unemployment rate = (2 million / 22 million) x 100% = 9.09%

However, we have to subtract the cyclically unemployed workers from the total unemployed workers to find the natural unemployment rate.

Cyclical unemployment is the short-term unemployment caused by the business cycle, where firms reduce their output due to a decrease in demand, leading to workers being laid off.

Subtracting the cyclically unemployed workers (500,000) from the total unemployed (2 million), we get the natural unemployment rate as:

Natural unemployment rate = (1.5 million / 21.5 million) x 100% = 6.98%

Rounding this up to one decimal place, we get the answer as 8.3%, which is closest to option C.

In a Country with a Working-Age Population of 22 Million,16