Question

Unemployment Rate = x 100 Number of employed hope Number of Plein the Laborare 10 100 x 100 10% Suppose a reduction in foreign demand for this economy's products causes an economic recession-a prolonged period of declining output. The following table offers two possible scenarios resulting from the recession Calculate the unemployment rate associated with each scenario in the following table. Assume that each scenario describes the only labor market changes in this economy. Unemployment Rate % Scenario A: Firms reduce work hours by 30%. The number of involuntary part-time workers rises as firms respond to the reduction in the demand for their products by reducing the hours of each employed person from 40 to 2 hours per week. B: Firms reduce employment by 30%. The number of unemployed workers risus as firms respond to the reduction in the demand for their products by laying off 27 previously employed workers True or Falser The unemployment rate for scenario A in the previous table overstates the true extent of underemployment in the economy because the BLS counts part-time workers as employed True False

Answer 1

Scenario A:

Unemployment rate= 10%

Scenario B:

Unemployment rate= 37%

reason- Employed=90

Unemployed=10

Firms reduces employment by 30%

New employed= 63

New unemployed= 100-63=37

New unemployment rate=(37/100)*100=37%

FALSE-

reason- Scenario A understates instead of overstate the extent of underemployment in the economy.