Question

Steve has experience as a restaurant manager, but he can’t get a job simply because the economy is so bad. Most likely, Steve is…

Question 1 options:

	a) Frictionally unemployed
	b) Structurally unemployed
	c) Cyclically unemployed

The current economy is operating at an unemployment rate of 3.5%. The natural unemployment rate is 5.0%. Given this information, solve for the cyclical unemployment rate.

Question 2 options:

	a) Cyclical unemployment rate = 1.5%
	b) Cyclical unemployment rate = -1.5%
	c) Cyclical unemployment rate = 8.5%
	d) Cyclical unemployment rate = -8.5%
	e) None of the above.

Answer 1

1) Solution: Cyclical unemployment

Explanation: Structural unemployment occurs due to decline in demand for production in a specific industry, and consequent disinvestment and decline in its manpower needs. Cyclical unemployment occurs because of the ups and downs in the business cycle over time. Frictional unemployment occurs when few workers are temporarily out of work while changing jobs

2) Solution: Cyclical unemployment rate = 1.5%

Working: Cyclical unemployment rate = Natural unemployment rate - Current unemployment rate = 5% - 3.5% = 1.5%