Answer to Question #226176 in Macroeconomics for Olavi

Question

 Suppose there are 180 million employed people and 20 million unemployed people. 

a) What is the unemployment rate? (5 marks)

b) Suppose that 5 million unemployed people give up their search for jobs and become 

discouraged workers. What is the new official unemployment rate? 

Answer 1

a.

Using the given information, unemployment rate would be:

$=[\frac{Total \space unemployed}{(total \space unemployed+ total \space employed)}]×100\\ =[\frac{20 \space million}{(20 \space million+180 \space million)}]×100\\ =\frac{20 \space million}{200 \space million}×100\\ =10\%$

b.

If 5 million unemployed people become discouraged, they will be removed from the labor force due to which new unemployment rate would be:

$=[\frac{Total \space unemployed}{(total \space unemployed+ total \space employed)}]×100\\ =[\frac{15 \space million}{(15 \space million+180 \space million)}]×100\\ =\frac{15\space million}{195\space million}×100\\ =7.69\%$