Answer to Question #163863 in Macroeconomics for davis

Question

A1-1. Suppose two countries with the same population each start with 10 unemployed workers and 90 employed workers. Subsequently 5 workers in country A find jobs and become employed, while in country B, all 10 of the unemployed become discouraged and leave the labour force. Because country B’s rate of unemployment falls from 10% to 0%, while country A’s only falls from 10% to 5%, we can say that the labour market outcome in Country B is superior to that in Country A. 

Answer 1

The final statement is true. The labor market outcome, or strength, is indicative of the ratio of actively searching workers in the labor force (the unemployed) to the number of available positions. Since country B now has no unemployed workers looking for jobs while county A still has a number (5 unemployed people for every 100) looking for jobs, the labor market strength for county B is higher than that for country A.