Question

Question 10: (5 points) Using the information below, calculate the following: Total Population Eligible labour force Population Labour Force Employed Unemployed Don't include the % sign in your answers 27,040 19,720 13,260 11,200 2,060 Part 1: What is the Participation Rate (in %) Part 2: What is the Unemployment Rate (in %) Assuming Okun's Law shows that for every 1% unemployment rate in excess of NAIRU causes a: Reduction in GDP (relative to potential GDP) of NAIRU is GDP 760 Part 3: What is the loss in GDP caused by unemployment above NAIRU (In other words the GDP gap is)

Answer 1

10.

Part 1.

Participation rate (%) = (Labour force / Eligible labour force population) X 100

= (13260 / 19720) X 100 = 67.24

Part 2.

Unemployment rate (%) = (Unemployed / Labour force) X 100

= (2060 / 13260) X 100 = 15.53

Part 3.

Excess unemployment rate above NAIRU = 15.53 - 3 = 12.53.

Reduction in GDP = 12.53 X 3 % = 37.59 %

So, loss of GDP = GDP gap = 0.3759 X 760 = 285.684.

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