In a country with a working-age population of 30 million, 18 million are employed, 2 million are unemployed, and 2 million of the employed are working part-time, half of whom wish to work full-time. If 1 million of those unemployed are cyclically unemployed, what is the natural unemployment rate?
A)5.6 percent
B)5 percent
C)6.7 percent
D)11.1 percent
E)1 percent

Question

Quizplus · Accepted Answer

The labor force is the sum of the employed and the unemployed, which is (18 million + 2 million) = 20 million.
The number of part-time workers who wish to work full-time is 2 million/2 = 1 million.
The number of people who are voluntarily unemployed is (20 million - 18 million - 1 million) = 1 million.
The natural unemployment rate is the sum of the people who are cyclically and voluntarily unemployed divided by the labor force: (1 million + 1 million) / 20 million = 0.1 or 10%, which rounds to 5%. Therefore, the best choice is B.

In a Country with a Working-Age Population of 30 Million