Labor Force Status--------Less than 55------------55 and older # employed-------

Question

Labor Force Status--------Less than 55------------55 and older

# employed--------------------400,000-------------------100,000

# unemployed-----------------25,000---------------------7,000

# in population----------------600,000--------------------200,000

Suppose that the natural rate of unemployment is 5% for those under 55 and 3% for those 55 and older. The cyclical unemployment rate for those under 55 is___________.

The answer is .88% which is less than the cyclical unemployment rate for those 55 and older

I WOULD JUST LIKE TO KNOW HOW TO SOLVE THIS PLEASE!! :)

Explanation / Answer

Unemployment Rate = Total Unemployed Workers / Total Workforce

Where, Total Unemployed Workers: People who are not working, and are actively looking for a job.

Total Workforce: All people who either looking for work or are working in an economy.

As per the problem, considering unemployment rate for those under 55

Total Unemployed Workers under 55= 25,000

Total Workforce under 55= 400,000 + 25,000 = 425,000

Unemployment Rate= Total Unemployed Workers under 55/ Total Workforce under 55

Or Unemployment Rate= 25,000 / 425,000= 5.8824%

Unemployment Rate= Normal Unemployment Rate + Cyclical unemployment rate

So, Cyclical unemployment rate = Unemployment Rate - Normal Unemployment Rate

Cyclical unemployment rate = 5.8824% - 5% = .8824%

The cyclical unemployment rate for those under 55 is .8824%

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