In a country with a working- age population of 22 million, 18 million are employed, 2 million are unemployed, and 1 million of the employed are working part- time, half of whom wish to work full- time.If 500,000 of the unemployed are cyclically unemployed, what is the natural unemployment rate?
A)10.0 percent
B)7.5 percent
C)2.5 percent
D)5.6 percent
E)8.3 percent

Question

Quizplus · Accepted Answer

The natural unemployment rate includes only frictional and structural unemployment, which are not caused by economic fluctuations. 
Therefore, we need to calculate the number of people who are working part-time but want full-time jobs and add them to the number of cyclically unemployed, then divide by the total working-age population and subtract the resulting percentage from 100% to get the natural unemployment rate.

Number of part-time workers who want full-time jobs = 0.5 million 
Number of cyclically unemployed = 0.5 million 
Total unemployed = 2 million 
Total employed = 18 million 
Therefore, the total number of people who are not working full-time by choice = 0.5 million + 0.5 million + 2 million = 3 million

The labor force = employed + unemployed = 18 million + 2 million = 20 million 
The total working-age population = labor force + not in the labor force 
Not in the labor force = working-age population - labor force = 22 million - 20 million = 2 million

Therefore, the natural unemployment rate = 
(3 million / (20 million + 2 million)) x 100% = 13.04% 
100% - 13.04% = 86.96%

Therefore, the natural unemployment rate is 86.96%, which is closest to option B, 7.5%.

In a Country with a Working- Age Population of 22