Question

In Alexland there are 70,000 people employed and 10,000 people who are unemployed. Of those 10,000 6,000 are structurally unemployed and 1,000 are frictionally unemployed. This economy would be described as:

In a recession

In an expansion

Operating at full employment

Having an economic boom

Answer 1

Natural unemployment rate= frictional + structural

Since natural level of unemployment is that unemployment at which there is some frictional and structural unemployment exist, this is short-term temporary unemployment and it may vanish in near future.

Actual unemployment rate = cyclical unemployment rate + natural level of unemployment

natural level of unemployment=[(6000+1000)/80000]*100

=8.75%

Cyclical unemployment rate=[3000/80000]*100

=3.25%

Actual employment rate =8.75+3.25

=12%

Since usually the natural level of unemployment rate is 5 % but here it is more than 8%, it means the economy is in the recession. This is because in the recession only the unemployment rate is very high.Since a recession is time period of the economy in which the price level is quite low and demand for goods and services are also very low. So the unemployment rate is very high, therefore the purchasing power is very low.

Hence if In Alexland there are 70,000 people employed and 10,000 people who are unemployed. Of those 10,000 6,000 are structurally unemployed and 1,000 are frictionally unemployed. This economy would be described as in a recession.

Hence option first is the correct answer.