Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Question
Chapter 30, Problem 4.1P
Sub part (a):
To determine
Sub part (b):
To determine
Unemployment rate and the annual GDP growth rate based on the Okun’s law.
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Chapter 30 Solutions
Principles of Economics (12th Edition)
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- Using the information below, answer questions 1 & 2 Okun’s Law, which describes the relationship between Real GDP growth and the change in the unemployment rate and may be approximated as follows: Real GDP Growth = 3 – 2*Change in unemployment rate This relationship applies to changes from year to year. The average unemployment rate in the 12 months of 2019 was 3.7%. The average unemployment rate during the 12 months of 2020 was 5.9%. 1. What does Okun’s Law imply will be the rate of Real GDP growth between 2019 and 2020? Explain your answer. 2. How does this prediction compare to the actual rate of Real GDP growth between 2019 and 2020?arrow_forwardConsider two hypothetical countries. In Country A, 18 percent of the labour force is unemployed for half the year and employed for the other half; the remaining 82 percent of the labour force is never unemployed. In Country B, 100 percent of the labour force is unemployed for 9 percent of the year and employed for the other 91 percent of the year. Note that both countries have an overall unemployment rate of 9 percent. Which of these countries seems to have the more serious unemployment problem, and why? O A. Country A because unemployment is unevenly distributed there. B. Country A because the unemployment is most likely cyclical. O C. Country B because unemployment is unevenly distributed there. O D. Country B because people are unemployed for the longer period of time. E. The answer is ambiguous. Both countries have very unevenly distributed unemployment.arrow_forwardConsider two hypothetical countries. In Country A, 18 percent of the labour force is unemployed for half the year and employed for the other half; the remaining 82 percent of the labour force is never unemployed. In Country B, 100 percent of the labour force is unemployed for 9 percent of the year and employed for the other 91 percent of the year. Note that both countries have an overall unemployment rate of 9 percent. Which of these countries seems to have the more serious unemployment problem, and why? O A. Country A because unemployment is unevenly distributed there. O B. Country A because the unemployment is most likely cyclical. OC. Country B because unemployment is unevenly distributed there. O D. Country B because people are unemployed for the longer period of time. O E. The answer is ambiguous. Both countries have very unevenly distributed unemployment.arrow_forward
- The U.S. unemployment rate increased from 4.6% in July 2001 to 5.9% by June 2002. Without studying the subject in any detail, would you expect that a change of this kind is more likely to be due to cyclical unemployment or a change in the natural rate of unemployment? Why?arrow_forwardIn 1929 the US had an unemployment rate of approximately 3.2%, or 1.6 million people unemployed, yet most economists suggest we were at full employment. What do economists mean by "full employment"?arrow_forwardWhen the economy is at full employment, will the unemployment rate be 0%? Explain briefly When the unemployment rate equals the natural rate of unemployment, what kinds of unemployment will continue to exist.arrow_forward
- Using the details listed below, respond to questions 1 and 2. Okun's Law, which outlines the connection between changes in the unemployment rate and real GDP growth, can be roughly summarised as follows: Real GDP Growth is equal to 3 - 2*changes in the unemployment rate. This relationship holds true for seasonal variations. In 2019 as a whole, the unemployment rate was 3.7% on average. In 2020, the average unemployment rate for the full year was 5.9%. 1. What is the rate of real GDP growth between 2019 and 2020 predicted by Okun's Law? Describe your response. 2. How does this forecast compare to the Real GDP growth rate that actually occurred between 2019 and 2020?arrow_forwardThe total adult, working-age population in January 2017 was 254.1 million. Out of this total population, 152.1 million were classified as employed, and 7.6 million were classified as unemployed. The remaining 94.4 million were classified as out of the labor force. As you will learn, however, this seemingly simple chart does not tell the whole story. Discuss what the unemployment rate is telling us. Explain what the unemployment rate does not tell us regarding the economy, or the health of the economy. What might we miss if we try to judge the economy based only on the unemployment rate?arrow_forwardSuppose a country surveys households and finds that 135 million people can be classified as being employed and 7 million people can be classified as being unemployed. The unemployed are people who do not have jobs but are actively looking for work. Given this information, what do we know about the unemployment rate for this country? The unemployment rate for this country is %. (Round your response to two decimal places.) Suppose this country has a natural rate of unemployment equal to 4.43%. What do we know about the size of the output gap, Y - Yn, in this country? The output gap in this country is million units. (Round your response to two decimal places and use a negative sign if necessary.) Now suppose this country has an a = 0.75 (). What do we know about the change in iflation, a - T( – 1), In this country between the previous year and this year? The change in inflation is percent. (Round your response to two decimal places and use a negative sign if necessary.)arrow_forward
- Suppose that in a population of 200 million persons, 150 million are in the labor force and 120 million are employed. Then the unemployment rate for this economy is: A) 20 percent B) 40 percent C) 60 percent D) 80 percentarrow_forwardAssume that in a country, the total labour force is 150,000 workers, and the total numbers of workers employed is 145,500. What is the unemployment rate in the economy?arrow_forwardOkun's Law is defined as: Change in the unemployment rate = - x(g-2%) If the unemployment rate is 3.6% and real GDP grows by 0.5%, the new unemployment rate is %. (Round your response to one decimal place.) Enter your answer in the answer box and then click Check Answer.arrow_forward
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