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1. The table below shows the labor data for an imaginary economy of Kiwiland for the year 2018. The economy of Kiwiland had an overall population of 500 million in that year. Employed People 350...

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1. The table below shows the labor data for an imaginary economy of Kiwiland for the year 2018. The economy of Kiwiland had an overall population of 500 million in that year.

Employed People350 Million
Unemployed People60 Million
People Not in the Labor Force50 Million

Hint: There is a difference between the adult population and the overall population.

Based on this information, calculate:

  • The labor force
  • The unemployment rate, and
  • Labor force participation rate

2. What is the natural rate of unemployment? Explain the difference between frictional unemployment and structural unemployment and provide an example of each.

3. Refer to the T account of First National Bank

First National Bank T Account
AssetsLiabilities
Reserves$2,500Deposits10,000
Loans$7,500


Based on the table:

  • Calculate the reserve ratio for this bank
  • Calculate the money multiplier for this bank
  • Assuming that this bank has a $500 excess reserve then how much money can be created with that amount?

4. Explain what is the fractional reserve banking system and how it is different from a 100% reserve banking system?


Answered Same Day Jul 20, 2021

Solution

Kamalika answered on Jul 21 2021
150 Votes
1. Labor Force = Employed + Unemployed = (350 + 60) million = 410 million
Unemployment Rate = (Unemployed/Labor Force) * 100
= (60/410) * 100 = 14.6%
Labor Force Participation Rate (LFPR) = (Labor Force/Civilian Noninstitutionalized Population) * 100
Civilian Noninstitutionalized Population = Labor Force + People not in labor force but are in working age group = (410 + 50) million = 460 million
LFPR = (410/460) * 100 = 89.1%
2. The natural rate of unemployment (NAIRU) is the rate of unemployment arising from sources other than cyclical fluctuations in aggregate demand. For example, estimates of potential GDP in any economy are based on the long-term natural rate.
Frictional unemployment occurs when workers search for new jobs or the time taken by the workers to switch between jobs. This type...
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