Question

Suppose that an economy has 9 million people working full-time. It also has 1 million people who are actively seeking work but currently unemployed as well as 2 million discouraged workers who have given up looking for work and are currently unemployed. What is this economy's unemployment rate? b. 15 percent. c. 20 percent. d. 25 percent.

Short answer

The unemployment rate is 10%, which does not match the given options.

Step-by-step solution

Understanding Unemployed Categories

First, identify who counts as unemployed for the purpose of calculating the unemployment rate. The unemployment rate is calculated using those who are actively seeking work but are not employed. This includes the 1 million people actively seeking work. Discouraged workers, although unemployed, are not included in the unemployed category for this calculation.

Calculating the Labor Force

The labor force consists of those who are employed and those who are actively seeking work. Therefore, it includes the 9 million people working full-time and 1 million people actively seeking work. Thus, the labor force is \( 9 + 1 = 10 \) million.

Finding the Unemployment Rate

The unemployment rate is calculated by dividing the number of unemployed people by the labor force, then multiplying by 100 to convert to a percentage. Since there are 1 million people unemployed, the unemployment rate is \( \frac{1}{10} \times 100 = 10\% \).

Compare to Given Options

Now, compare the calculated unemployment rate with the provided options (15 percent, 20 percent, 25 percent). None of the given options match the calculated unemployment rate of 10 percent. It seems there may be a discrepancy or misunderstanding with the options provided.

Key concepts

Discouraged Workers

Discouraged workers are individuals who have stopped looking for work because they believe there are no jobs available for them. They are an important part of labor market discussions because their presence can influence our understanding of true unemployment.

While discouraged workers are unemployed, they are not included in the standard unemployment rate, as it only considers those actively seeking employment.

By excluding discouraged workers from the unemployment calculations, we might underestimate the unemployment rate, as some individuals who want jobs are not reflected in these figures.

Labor Force

The labor force is a critical element in calculating the unemployment rate and understanding economic health. It includes everyone from a population who is willing and able to work.

This means the labor force is made up of employed individuals plus those who are unemployed but actively searching for work.

Individuals like discouraged workers or those not actively seeking employment, such as retirees, are not included in the labor force.

For instance, if an economy has 9 million employed and 1 million unemployed but actively seeking work, the labor force totals 10 million.

Unemployment Categories

Unemployment categories help us understand the various reasons why people might not be working.

The most commonly discussed category is those who are actively seeking work but are currently unemployed. These individuals are counted in the unemployment rate.

Beyond active seekers, there are several other categories including:

• Discouraged Workers: Those who want a job but have stopped looking for work due to repeated job search failures.
• Underemployed: Workers employed below their skill level or in part-time positions despite wanting full-time work.

By considering all categories, we get a fuller picture of employment challenges an economy may face.

Economic Indicators

Economic indicators are statistics that provide insight into the health of an economy. The unemployment rate is one of the most important economic indicators.

This rate shows the percentage of the labor force that is unemployed and actively seeking work.

Other significant economic indicators include:

• Gross Domestic Product (GDP): The total value of all goods and services produced in a country.
• Inflation Rate: Measures how prices of goods and services rise over time.

These indicators help governments and investors make informed decisions, adjusting policies or strategies according to the current economic climate.