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)1.5 percent

Question

Quizplus · Accepted Answer

The natural unemployment rate includes only frictional and structural unemployment.

To calculate it, first we need to determine how many people are employed full-time:

16 million employed - 1 million employed part-time = 15 million employed full-time

Next, we need to subtract the number of people who would like to work full-time but are currently only able to find part-time work:

1 million employed part-time * 0.5 = 0.5 million who would like to work full-time

15 million employed full-time - 0.5 million who would like to work full-time = 14.5 million employed full-time

Then, we need to subtract the number of people who are cyclically unemployed:

2 million unemployed - 500,000 cyclically unemployed = 1.5 million structurally and frictionally unemployed

Finally, we can calculate the natural unemployment rate:

1.5 million structurally and frictionally unemployed / 22 million working-age population = 0.068 or 6.8%

Thus, the answer is C, 8.3% (rounded to one decimal place).

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