Ass 5.8 - Essay Example

Download file to see previous pages... In order to determine the official unemployment rate it is important to determine the total labor force. Total labor force = Unemployed work force + employed workers = 8.4 + 108.5 =116.9 Therefore, Unemployment rate= Number of unemployed workforce ?100 = 8.4 ? 100 = 7.2% Total Labor force 116.9 The official unemployment in the US in 1991 was = 7.2% 2. If bureau of statistics considered 1.2 million people as unemployed, the official unemployment rate will be as follows; Official Unemployment rate= Number of unemployed workforce ?100 Total Labor force Total labor force = 108.5 + 1.2= 109.7 Official Unemployment rate= (1.2?109.7)100 =1.1% There was a discrepancy of 6.1% obtained by finding the difference between the two rates of unemployment as follows 7.2%-1.1% =6.1%. The discrepancy may be attributed to an increase in recession and inflation rate leading to a decrease in unemployment rate by 1.6% in the second answer. 3. The Concept of natural rate of unemployment Natural rate of unemployment refers to the rate of unemployment that occurs in a healthy economy when the labor market at equilibrium (Taylor, 2007). At this at this point full employment corresponds with the rate of unemployment. The concept can be presented diagrammatically as shown below. Real Wage ASL N= labor force ADL Natural rate of Unemployment We Q1 Q2 Source: Author Natural rate of unemployment include Frictional and structural unemployment (Mankiw, 2011). Frictional rate of unemployment occurs when people leave their current job and went to look for new better and satisfying jobs (Mankiw, 2011). During this period, people may remain unemployed and therefore, an economy may experience frictional rate of unemployment (Mankiw, 2011). On the other hand, Structural rate of unemployment occurs when new technological changes leads to unemployment because people do not have the required skills and knowledge to do the job and therefore, people need to be retrained in to make their skills correspond to a job need (Woirol, 1996). Distinguishing between “good” inflation and “bad” inflation and why some economists see some inflation superior than others. Economist asserts that a good inflation refers to the one that creates caution to an economy of an impending deflation so that an economy can put in place necessary measures to curb impending deflation (Mceachern, 2012). Additionally, a good inflation can helps in real wage adjustment in case of disequilibrium. On the other hand, economist asserts that a bad inflation is the one that has a depressing impact to an economy making the cost of living to be extremely high and unbearable(Mceachern, 2012). A bad inflation tends to make an economy engage itself in borrowing leading to escalating debts. Additionally, wages and income tend to remain low as the cost of living continues to rise (Mceachern, 2012). This situation could lead to strikes and boycotts as workers pressures employers to increase their salaries and wages in order to cope with high cost of living (Mceachern, 2012).Some economist hold that hyper inflation as a superior as compared with double digit and moderate inflation. This is because hyper inflation makes the economy to become totally depressed as money in circulation losses value making the cost of living unbearable. Lesson 9: Managing the Economy: Fiscal Policy and Its Effects 1 (a).Effects of $20billion tax cut on ...Download file to see next pagesRead More