The labor force does not include people under 16 years of age and those people institutionalized and those not in the labor force. The total population of a country is 1,000. There are 100 people under 16 years of age; there are 120 people institutionalized; and 250 people are not looking for work.

a. What is the actual labor force?

b. If there are 50 people unemployed, what is the rate of unemployment?

c. If the NAIRU, Nonaccelerating Inflation Rate of Unemployment, is 6 percent, what is the real rate of unemployment?

(a) 530

(b) 9.43%

(c) 3.43%

Explanation:

Given that,

Total population of a country = 1,000

People under 16 years of age = 100

No. of people institutionalized = 120

No. of people are not looking for work = 250

(a) Actual labor force:

= Total population - (People under 16 years of age + No. of people institutionalized + No. of people are not looking for work)

= 1,000 - (100 + 120 + 250)

= 1,000 - 470

= 530

(b) Rate of unemployment:

= (Unemployed people : Actual labor force) * 100

= (50 : 530) * 100

= 9.43%

(c) Real rate of unemployment:

= Rate of unemployment - Non accelerating Inflation Rate of Unemployment

= 9.43% - 6%

= 3.43%