Question

what is the equilibrium unemployment rate abd the cyclical unemployment in the case if tbis question and hkw di you find it? thanks!

Consider the following table in which columns (1) and (2) give information about the initial short-run aggregate supply curve for the fictional country of Zerovia. Column (3) shows total employment at different output levels. There are eight million workers in the total labour force. Usually, 500 000 workers are structurally or frictionally unemployed. TABLE ONE (6) (1) Price Level (Index) (2) Aggregate Output billion $ 930 920 900 115 110 105 100 (3) (4) Total Output Employment Demanded full-time equiv. billion $ 7 650 000 600 7 600 000 650 7 550 000 700 7 500 000 750 7450 000 800 7 400 000 800 7 200 000 800 6 900 000 800 850 850 Output Demanded billion $ 700 750 800 850 900 900 900 900 950 Output Demanded billion $ 800 850 900 950 1000 1000 1000 1000 1050 800 750 700 650 90 (a) [12 points) Initially, aggregate demand is shown by columns (1) and (5). Graph this AD curve (ADa) on "Figure One", along with the short-run aggregate supply curve (AS1) described by columns (1) and (2). What is the equilibrium price level? What is the equilibrium level of output? What is the equilibrium unemployment rate? What is the rate of cyclical unemployment?

Answer 1

Consider the following fig shows the AD and the SRAS of the economy.

AS 115 110 105 100 ADa 930 920 900 850 800 750 700 650 95 700 750 800 850 900 900 900 900 950 AD -+AS 200 400 600 800 1000

Here “E” be the equilibrium of the economy where the AD and AS cross to each other. So, the equilibrium price and output are “P=100” and “Y = $850 billion”. The equilibrium unemployment is “7,500,000”, => the unemployment rate is “u = (8,000,000-7,500,000)/8,000,000 = 500,000/8,000,000.

=> u = 5/80 = 0.0625 = 6.25%. So, the unemployment rate is “6.25%”.

Here the cyclical unemployment is the sum of “structural unemployment” and “frictional unemployment”, => here the cyclical unemployment is “500,000”.