L03 ConcepTest

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Pennsylvania State University, World Campus *

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Economics

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Apr 3, 2024

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Lesson 3 ConcepTest This ConcepTest has 4 questions. Use the labor statistics data in the table below to answer questions 1-3. Assume that 4 million unemployed individuals become “discouraged” and decide not to look for a job anymore. Adult Population (millions) 220 Unemployed (millions) 12 Employed (millions) 135 1. What was the unemployment rate before and after the 4 million unemployed individuals became discouraged? Unemployment rate before: Labor Force= Unemployed+ Employed 12+135= 147 million UR= unemployed/labor force x 100 UR=12/147 x 100 = 8.16% Unemployment rate after: Unemployed= 12-4=8 million Employed 135 Labor Force = Unemployed+ Employed 8+135= 143 million UR= unemployed/labor force x 100 UR= 8/143 x 100 = 5.59% 2. What was the labor force participation rate before and after the 4 million unemployed individuals became discouraged? Labor force participation before: Labor force participation rate= labor force before unemployment/ adult population x 100 LFPR= 147/220 x 100 = 66.82% Labor force participation after:

Labor force participation rate= labor force after unemployment/ adult population x 100 LFPR= 143/220 x 100= 65% 3. Using your answers from above, explain why one should not look only at a single economic indicator when trying to explain changes in the labor market. When 4 million unemployed individuals became discouraged, the unemployment rate decreases from 8.16% to 5.59%. If I was to only analyze the labor market using the unemployment rate, then this decrease in the unemployment rate would show that the labor market is improving. Overall, this decrease in the unemployment rate is due to the fact that 4 million individuals became discouraged workers. Since these workers are not officially unemployed, there would be no improvement to the unemployment situation. There is also a decrease in the labor force participation rate from 66.82% to 65%, which shows the labor market situation regressing. So, this is why you should not look at only one economic indicator when trying to explain the changes in the labor market. 4. How do you think an increase in unemployment insurance would affect unemployment rates? Explain speaking about at least one type of unemployment. An increase in unemployment insurance would persuade an individual to take more time when finding a job. This causes an individual to want to look for more job opportunities before taking up a job because their income would be supported by the increase of unemployment insurance. An individual who is entering the workforce and actively looking for a job or a person who had left a job and is searching for a new one would be considered as a frictionally unemployed. These individuals take more time to find a job due to the increase in unemployment insurance, and frictional unemployment would increase as well. Since frictional unemployment increases, this would result in an increase in unemployment rates.

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