A country with a civilian population of 90000 all over age 1

A country with a civilian population of 90,000 (all over age 16) has 70,000 employed and 10,000 unemployed persons. Of the unemployed, 5,000 are frictionally unemployed and another 3,000 are structurally unemployed. On the basis of this data, answer the following questions: (show your work for credit)

What is the size of the labor force?

What is the unemployment rate?

What is the natural rate of unemployment for this country?

Is this economy in recession or expansion? Explain.

Solution

Size of the labor force = 70000 + 10000 = 80000

Unemployment rate = 10000 / 80000 = 12.5%

Natural Unemployment rate = 5000 + 3000 / 80000 = 10%

This economy is in recessionas the natural unemployment rates which should be around 4% to 6% is 10% and the unemployment rate is higher than the natural unemployment rate which is the equilibrium of full employment.