Question

Total Population	300,000,000
Population Under 16 years old or institutionalized people	90,000,000
People able to work but not interested in working	80,000,000
Total Number of Unemployed people (U3 unemployment)	26,000,000
People trying to get new set of skills while searching for a job	6,000,000
People who are looking for a job or waiting to get one	15,000,000
People who have given up looking for a job	7,000,000
Part-time people who want to have a full time job	5,000,000

4.     Based on the information above calculate the following:

a. Working age population

b. Frictional unemployment rate

c. Structural unemployment rate

d. Cyclical unemployment rate

e. Total unemployment rate (U3)

f. Total unemployment rate (U6)

g. The natural rate of unemployment (full employment unemployment rate).

5. (5 points) Calculate the multiplier based on each of the situations below and comment on your answers as you move from point a to point f (what happens to the multiplier?).

a.   MPS = 0.15

b.   MPS = 0.20

c.   MPS = 0.30

d.   MPS = 0.40

e.   MPS = 0.50

f.    MPS = 0.60

Answer 1

a. Working age population = Total population - Population Under 16 years old or institutionalized
people = 300,000,000 - 90,000,000 = 210,000,000
Labor force = Working age population - People able to work but not interested in working - People
who have given up looking for a job - Part-time people who want to have a full time job = 210,000,000
- 92,000,000 = 118,000,000 -
b. Frictional unemployment rate = 15,000,000/118,000,000 = 12.71%
c. Structural unemployment rate = 6,000,000/118,000,000 = 5.08%
d. Cyclical unemployment rate = (26,000,000 - 15,000,000 - 6,000,000)/118,000,000 = 4.24%
e. Total unemployment rate (U3) = 26,000,000/118,000,000 = 22.03%
f. Total unemployment rate (U6) = (26,000,000 + 5,000,000)/123,000,000 = 25.203%
g. The natural rate of unemployment = Structural unemployment rate + Frictional unemployment rate
= 5.08% + 12.71% = 17.80%
5) a) Multiplier = 1/MPS
= 1/0.15 = 6.67
b) 1/0.20 = 5
c) 1/0.30 = 3.33
d) 1/0.40 = 2.5
e) 1/0.50 = 2
f) 1/0.6 = 1.67
We see that as a greater proprotion of increased income is saved and MPS is increased, multplier
gets smaller as savings are leakages in circular flow.