Answer to Question #225461 in Macroeconomics for Sheehama Asser

Question

Consider the following scenario. Initially the economy has 90 million people working, 10 million people unemployed, and 20 million people not in the labor force. Then prospects for the economy improve. Five million people who previously were not in the labor force now join the 10 million previously unemployed in looking for work. For now, the economy remains with 90 million workers. What happens to the unemployment rate?

Answer 1

Labor Force = Employed + Unemployed

= 90 million + 10 million = 100

= $unemployed ÷labor force * 100$

= $10÷100 * 100$ = 10%

Unemployed = 10 million + 5 million = 15 million

Unemployment rate = $15÷100 * 100$ = 15%

Therefore The unemployment rate increased from 10 to 15 percent