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Question
Statistics
Posted 2 months ago

The current rate of unemployment in Burrland is 3\%. Economists estimate that frictional unemployment is 5%5 \% and structural unemployment is 2%2 \%.

Which of the following best describes the amount of cyclical unemployment in Burrland and current output in the economy?

Choose 1 answer:
(A) Cyclical unemployment is 0%0 \%; output is equal to full employment output.
(B) Cyclical unemployment is 4%-4 \%; output is greater than full employment output.
(C) Cyclical unemployment is 0%0 \%, output is less than full employment output.
(D) Cyclical unemployment is 4%-4 \%; output is less than full employment output.
(E) Cyclical unemployment is 7%7 \%; output is equal to full employment output.
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Answer from Sia
Posted 2 months ago
Solution by Steps
step 1
Calculate the total expected unemployment by adding frictional and structural unemployment: 5%+2%=7%5\% + 2\% = 7\%
step 2
Compare the actual unemployment rate to the expected unemployment rate to find cyclical unemployment: 3%7%=4%3\% - 7\% = -4\%
step 3
Interpret the negative cyclical unemployment: If cyclical unemployment is negative, this indicates that the actual unemployment is less than the natural rate of unemployment, suggesting that the economy is producing above its full employment output
Answer
B
Key Concept
Cyclical Unemployment
Explanation
Cyclical unemployment is the difference between the actual unemployment rate and the natural rate of unemployment (the sum of frictional and structural unemployment). A negative cyclical unemployment indicates an economy operating above its full employment output.

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