Question

If the natural rate of unemployment is 5.2 percent and the actual rate of unemployment is 5.7 percent, then by definition there is

Select one:
structural unemployment amounting to 5.7 percent of the labor force
frictional unemployment amounting to 0.5 percent of the labor force
cyclical unemployment amounting to 0.5 percent of the labor force Correct
structural unemployment amounting to 0.5 percent of the labor force

Answer 1

The correct answer is cyclical unemployment amounting to 0.5 percent of the labor force

Cyclical unemployment is estimated using the following formula:

$\text{Cyclical unemployment=Actual rate of unemployment-Natural rate }$

Substituting the given information to the above formula we get:

$\text{Cyclical unemployment}=5.7\%-5.2\%$

$\blue{\text{Cyclical unemployment}=0.5\%}$

In conclusion the 0.5% of the labor force constitutes cyclical unemployment.