Question

In: Economics

If the number employed is 150 million, the prime working-age population is 190 million, and the...

If the number employed is 150 million, the prime working-age population is 190 million, and the number unemployed is 10 million, the labor force participation rate is 65%, then the unemployment rate is
  
21.1%
8.2%.
6.3%
5.3%
can not be determined because we do not know what the labor participation rate for the actual working age population is.

In the United States, from the first quarter of 2020 to the second quarter of 2020, assume that real GDP decreases by 2.3%, the unemployment rate rises from 3.6% to 8% and the CPI index goes from 148 to 134. In such an economic scenario,
  
The aggregate demand curve must have shifted leftward, moving down along a short-run aggregate supply curve.
The short-run aggregate supply curve must have shifted leftward, moving up along the aggregate demand curve.
The aggregate demand curve must have shifted rightward, moving up along a short-run aggregate supply curve.
The short-run aggregate supply curve shifts rightward, moving down along the aggregate demand curve.

Solutions

Expert Solution

(1) Employed people = 150 million

Unemployed people = 10 million

Labor force = Employed + Unemployed

Labor force = 150 million + 10 million

Labor force = 160 million

Unemployment rate = (Unemployed people / Labor force) *100

Unemployment rate = (10 million / 160 million) * 100

Unemployment rate = 6.25%

Unemployment rat = 6.3%

Answer: Option (C)

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(2) Following things happened in second quarter of 2020.

Real GDP decreases

Unemployment rises.

CPI (i.e., price index) falls from 148 to 134.

In such type of economic scenario the aggregate demand curve must have shifted leftward, moving down along a short run aggregate supply curve.

As we can see in the above graph, leftward shift of AD curve from AD1 to AD2 leads to decrease in price level; decrease in real GDP (and decrease in real GDP implies increase in unemployment rate)

Answer: Option (A)


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