Suppose that 5 percent unemployment is defined as “full employment,” but current unemployment is 7 percent. Suppose further that we have the following information:

a. What is the amount of “hidden” unemployment when the unemployment rate is 7 percent?

b. If the population is 10,000, what change occurs in the participation rate as a result of the marginal change in the unemployment rate?

c. What is the economic significance of hidden unemployment? Should measured and hidden unemployment be added to obtain a “total unemployment”
figure?

Transcribed Image Text:

Unemploy- ment Rate (%) Force 5 6,000 7 5,600 Labor Unemploy- ment 300 392 Employ- ment 5,700 5,208