Basic Macroeconomic Problems Leader countries that experience modern economic growth early on will always grow faster than follower countries. In 1991, there were 108.5 million employed workers and 8.4 million unemployed workers in the U. S. What was the official unemployment rate? Show your work. (25 points) Unemployment Rate = (Unemployed Workers / Total Labour Force) x100 Total Labour Force = Unemployed Workers + Employed Workers Therefore Total Labour Force = 108,500,000 + 8,400,000 = 116,900,000 Unemployment Rate = (8,400,000/116,900,000) x 100 = 7.2% 2) Some economists estimate that 1.2 million people were discouraged workers in 1991, a mildly recessionary year.
If the Bureau of Labor Statistics had considered these people unemployed, what would the official unemployment rate have been? Show your work, and explain the discrepancy between your answers to questions #1 and #2. (25 points) Unemployment Rate = (Unemployed Workers / Total Labour Force) x100 Unemployed Workers = 8,400,000 + 1,200,000 = 9,600,000 Employed Workers = 108,500,000 Total Labour Force = 108,500,000 + 9,600,000 = 118,100,000 Unemployment Rate = (9,600,000/118,100,000) x 100 = 8.1% Discrepancy between your answers to questions #1 and #2 could be attributed to the increased number of unemployed people by 1.2 million.
Unemployment rate refers to the measure of employable people in a total labor force of a specific region who were available for work or those who lost their jobs but are still searching for employment within a period of one month. It is noteworthy that Unemployment Rate is directly proportional to the Total Number of Unemployed workers in the sense that an increase in the number of unemployed workers within a particular period will result to an increase in the Unemployment Rate in that period and vice versa thus the disparity in the answers of questions #1 and #2.
In other words, the increase in the number of unemployed people by 1.2 million led to an increase in the Unemployment Rate from 7.2% to 8.1%. 2. Explain, in your own words, the concept of a “natural rate” of unemployment. (25 points) The concept of a “natural rate” of unemployment is based on the assumption that an economy will never lack job seekers at any given time.
In other words, unemployment is a persistent situation that is inevitable to alleviate in an economy. Unemployment levels remains to be dynamic as it is often expected to fluctuate on different occasions. It is not worthy that employment levels is not fully dependant on health of an economy considering the fact that even well stable economies often end up reporting unemployment rates at different circumstances. Economics scholars have identified a number of factors to be the driving force behind the existence of unemployment in an economy when the supply of labor is equivalent to the demand for labor in the market (Nafziger, 72).
Key among the factors include but not limited to change in business cycle, inflation, technological advancement, retrenchment, degree of labor mobility, lack of adequate skills and required experience, access to job information, strength of labor unions, minimum wage requirement, demographic development, employment laws and regulation and finally number skilled youth. Natural Rate of Unemployment, which focuses on the surplus workforce in an economy when the labor market is at its equilibrium level, is a subject to influence by. business cycle.
When the economy is doing well and companies are forced to increase their output to meet market demand, most employers they tend to hire more workers and vice versa. Retrenchment of workers during tough economic period will certainly increase the Natural Rate of Unemployment. Some workers are also known for leaving their jobs before getting others owing to a number of reasons such as pursuing academic goals, sickness, and family commitments, change of city, pregnancy, and need to change career path (Nafziger, 72).
They completely drop out of the labor force, however when they decide to return to active job search they would still be considered under unemployed group. Advancement in technology has also been a major cause of Natural Rate of Unemployment. Change in technology is known for rendering skills of several employees obsolete thus forcing them out of employment. As much as these employees would love to be at work they end up useless at their workplace and unless such employees undergo further training they are likely to stay for long searching for jobs that match their skills and education levels.
3. Perhaps tongue-in-cheek, some economists occasionally distinguish between “good” inflation and “bad” inflation. Based upon your knowledge of the text, speculate as to why these economists might see some inflation as superior to others. (25 points) Economists may see some inflation as superior because they have different causes, effects and measures. In most cases, people tend to have negative attitude towards any kind of inflation regardless of its effects (Nafziger, 72).
According to the yearly world economic survey, there are different types of inflation and each package of inflation has its effects that determine the intensity of inflation. In most cases, the economists tend to study and analyze the inflation-pricing trend and the impact on the economy before giving their percentage rating. The rating and superiority of inflation is based on the percentage increase in commodity and service prices. There are four types of inflations that are; hyperinflation, extremely high inflation, moderate inflation and low inflation.
Hyperinflation is inflation with a three-digit annual percentage increase, extremely high inflation range between 50-100 percent annual price increase, moderate inflation with 20-30 percent annual price increase and finally low inflation with a range on 1-5 percent annual price increase. This is the reason why economists gauge and see some inflation as superior to others. The superiority of inflation lies in the rate of percentage price increase. Work cited Nafziger, E W, and E W. Nafziger. Economic Development. New York: Cambridge University Press, 2005. Print.