Employed

86,000 Persons

Unemployed

14,000 Persons

Civilian Population

125,000 Persons

Total Population

150,000 Persons

The table above shows the labor-market data published by the government of a small hypothetical country. The natural rate of unemployment in this country is 4%. What is the cyclical rate of unemployment in this country?

Question

Employed

86,000 Persons

Unemployed

14,000 Persons

Civilian Population

125,000 Persons

Total Population

150,000 Persons

The table above shows the labor-market data published by the government of a small hypothetical country. The natural rate of unemployment in this country is 4%. What is the cyclical rate of unemployment in this country?

BlackTom AI · Accepted Answer

We start by restating the data and what is being asked. The table provides Employed: 86,000; Unemployed: 14,000; Civilian Population: 125,000; Total Population: 150,000. The natural rate of unemployment is 4%. We want the cyclical rate of unemployment.

First, determine the labor force, which is the sum of employed and unemployed people. Labor force = 86,000 + 14,000 = 100,000.

Next, compute the actual unemployment rate, which is unemployed divided by the labor force: 14,000 / 100,000 = 0.14 or 14%.

The cyclical unemployment rate is the portion of total unemployment that is due to the business cycle, i.e., cyclical unemployment = actual unemployment rate − natural rate of unemployment. Here, 14% − 4% = 10%.

Now examine the answer options. Option 1 (8%) would imply a smaller gap than the natural rate suggests, which conflicts with the 14% observed. Option 2 (9%) is also not matching the 14% actual rate minus 4% natural rate. Option 3 (10%) aligns exactly with the calculation 14% − 4%. Option 4 (11%) and Option 5 (None of the above) do not fit the computed 10% cyclical unemployment.

To summarize the logical flow: compute labor force → compute actual unemployment rate → subtract natural rate to obtain cyclical component → compare with provided choices to identify which option matches the derived value. The process hinges on the definitions: labor force = employed + unemployed; unemployment rate = unemployed / labor force; cyclical unemployment = actual rate − natural rate.

Therefore, the value that matches the derived result is the third option in the list.

ECN 001B B01-B04 FQ 2025 Final Examination

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