1. Inflation rate = 10.4 Cyclical rate = 1.8 Structural rate = 2.9 Expected infl

Question

1. Inflation rate = 10.4
Cyclical rate = 1.8
Structural rate = 2.9
Expected inflation rate = 12.0
Current unemployment rate = 12.8

Given these estimates, what is the rate of frictional unemployment?

2. You are given the following estimates:

Inflation rate = 5.2 percent
Natural rate of unemployment = 4.7 percent
Structural rate = 3.3 percent
Cyclical rate = 3.9 percent
Expected inflation rate = 2.1 percent

What is the current rate of unemployment?

3. In an economy with a population of 248.5 million people, 158.9 million hold jobs, 4.6 million are not working but are looking for work, and 5.9 million say they would like to work but are not looking because they don't believe there are any jobs available for them. What is the size of the labor force?

4. With the following information, calculate the price index for year 4. Year 2 has been chosen to be the base year. The basket of goods for this price index includes 48 units of good X and 79 units of good Y.

5.

What was the percent change in the price level between year 2 and year 4?

PRODUCT YEAR 1 YEAR 2 YEAR 3 YEAR 4 Good X 6.8 10.1 13.2 22.6 Good Y 4.8 7.2 2.0 19.4

Explanation / Answer

1)

From theory we knew that,

Cyclical Unemployment rate = Current unemployment rate - Natural unemployment rate

Natural unemployment rate = Structural unemployment rate + Frictional unemployment rate

So,

Cyclical Unemployment rate = Current unemployment rate - (Structural unemployment rate + Frictional unemployment rate)

Frictional unemployment rate = Current unemployment rate - Structural unemployment rate - Cyclical Unemployment rate

Here, Cyclical Unemployment rate = 1.8

Structural unemployment rate = 2.9

Current unemployment rate = 12.8

So,

Frictional unemployment rate = 12.8 - 2.9 - 1.8

Frictional unemployment rate = 8.1.

So, the rate of frictional unemployment is 8.1.

2)

The natural rate of unemployment is define as the rate of unemployment when the labour market is in equilibrium. it is also known as non-accelerating inflation rate as if it is 4% there is no change in the rate of the prevailing Inflation.

Given here-

Inflation rate = 5.2%

Natural rate of unemployment = 4.7%

Structural unemployment rate = 3.3%

Cyclical unemployment rate = 3.9%

Expected inflation rate = 2.1%

Therefore the current rate of unemployment= Natural rate of unemployment + structural unemployment rate - Cyclical unemployment rate

= 4.7% + 3.3% - 3.9%

= 4.1%

Therefore the current rate of unemployment is 4.1%

4)

Answer) 4

Market Basket for year 4 = (48x$22.6) + (79x$19.4) = $1084.8 + $1532.6 = $2617.4

Market Basket for year 2 = (48x$10.1) + (79x$7.2) = $484.8 + $568.8 = $1053.6

Price Index for year 4 = {(Market Basket for year 4) /(Market Basket for year 2) } x 100 = 2.484 x100 = 248.4

5)

Answer
%change in price level
=(price level of year 4- price level of year 2)(price level of year 2)
=(169.5-133.0)/133.0
=27.44%

the increase in the price level is 27.44%

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