Question

1. Carefully define the unemployment rate. How is the unemployment rate used to measure the economy’s performance? What flaws and/or pitfalls are there in the measure?

Answer 1

Unemployment is a state of condition in a country there are large number of able -bodied persons of working age who are willing to work but cannot find work at the current wage levels. Unemployment rate is the percentage of unemployment calculated by dividing the number of unemployed people by number of people currently enrolled in labor force Unemployment rate provides information about an economy's actual capacity or low capacity and unutilized resources.. Unemployments tend to be cyclical and it decreases as economy expands when firms hire more workers to meet the growing demand and unemployment increases when an economy faces recession. Unemployment rate is an important measure to analyse the economy's performance. Unemployment rate is most important tool that the central bank uses to determine the health of economy when enacting expansionary or contractionary fiscal policy . Investors or business firms are also use unemployment rate or unemployment statistics to look at which sectors are losing jobs at faster rate Unemployment is not accurate or best indicator for measuring overall economy's performance. Because it measures underemployed and marginal workers ( including discouraged workers) into consideration as well as unemployed people .Unemployment rate does not separate part time and full time workers . That means it does not consider the quality of job that people works. Unemployment rate does not capture the long term unemployment rate. Unemployment rate won't consider how long people have not had jobs. It does not consider everyone doesn't have job. That is why many economists focus on real unemployment rate