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S6 Economics | Inflation and Unemployment Paper 2 (Defining and Measuring Unemployment)
S6 Economics | Inflation and Unemployment Paper 2 (Defining and Measuring Unemployment)
The unemployment rate is the most misread number in the syllabus: it counts only people without work, able to work and actively searching. This paper starts from the denominator and then separates the three types.
Attempt first, mark afterwards Allow about twenty-five minutes; before computing a rate, write down the numerator and the denominator, then press the keys once.
01 Paper details (check answers afterwards)
| Item | Detail |
|---|---|
| Questions | 10 items |
| Suggested time | About 25 minutes |
| Difficulty mix | Foundation 4 · Intermediate 3 · Challenge 2 · Error redo 1 |
| Chapter | Chapter: S6 Economics | Inflation and Unemployment |
| Level | S6 (Secondary 6) Economics |
02 Questions (10 items)
- FoundationAn economy has 3,000,000 employed and 150,000 unemployed. What are the labour force and the unemployment rate?
- FoundationContinuing, the population aged 15 and over is 4,000,000. What is the labour force participation rate?
- FoundationWhich of these is not unemployment? (a) a fresh graduate attending interviews (b) someone working two hours a week who wants full-time work (c) a full-time homemaker (d) a retrenched worker looking for a job
- FoundationHow do frictional and structural unemployment differ? Give one example each.
- IntermediateUnemployment rises during a recession. Which type is this and what is the most direct policy response?
- IntermediateIt is claimed that unemployment can fall when people give up looking. With 150,000 unemployed in a labour force of 3,150,000 and 20,000 dropping out, how does the rate move?
- IntermediateThe natural rate comprises 2.5 per cent frictional and 2 per cent structural unemployment. What is the natural rate, and if actual unemployment is 4.76 per cent, how much is cyclical?
- ChallengeThere are 150,000 unemployed people against only 30,000 vacancies, with unemployment at 4.76 per cent. Which type of unemployment does this suggest, and will more vacancies alone help?
- ChallengeA government raises unemployment benefits and lengthens their duration. What are the short- and long-run effects on unemployment?
- Error redoA classmate writes that if government creates one job per unemployed person, unemployment would fall to zero. What is wrong?
03 Answers and one-line notes
| # | Answer | One-line note |
|---|---|---|
| 1 | Labour force 3,150,000; unemployment rate 4.76 per cent | The labour force is employed plus unemployed, 3,000,000 plus 150,000 equals 3,150,000, and the rate is 150,000 over 3,150,000 times 100, which is 4.76 per cent. |
| 2 | 78.75 per cent | Participation is the labour force over the population aged 15 and over, times 100: 3,150,000 over 4,000,000 gives 78.75 per cent. |
| 3 | (c) the full-time homemaker | Unemployment means being able to work, without work, and actively seeking it; a homemaker not seeking work is outside the labour force and is not counted. |
| 4 | Frictional is the time taken to switch jobs; structural is a mismatch of skills after industry change | Frictional spells are short and exist in any economy, such as a graduate seeking a first job; structural unemployment follows technology or industrial shift, such as a factory relocating or typists replaced by computers, and needs retraining rather than more vacancies. |
| 5 | Cyclical unemployment; expansionary fiscal or monetary policy to lift aggregate demand | Cyclical unemployment follows the business cycle as weak aggregate demand makes firms cut staff; in the short run higher government spending, tax cuts or rate cuts lift demand, while training and job matching address structural problems. |
| 6 | From 4.76 to 4.15 per cent | At first 150,000 over 3,150,000 gives 4.76 per cent; after the drop-outs there are 130,000 unemployed in a labour force of 3,130,000, which is 4.15 per cent, so a falling rate need not mean better employment. |
| 7 | Natural rate 4.5 per cent; cyclical about 0.26 per cent | The natural rate is 2.5 plus 2, that is 4.5 per cent; actual 4.76 per cent exceeds it, and the 0.26 point gap is the cyclical part caused by deficient demand. |
| 8 | 5 unemployed per vacancy points to structural mismatch, so extra vacancies alone help little | 150,000 over 30,000 is 5, so vacancies are far too few; where skills or districts also mismatch, say construction short of workers while clerical jobs queue, extra vacancies will go unfilled without training and relocation support. |
| 9 | Short run: it supports spending; long run: it may lift the natural rate by weakening the incentive to search | Benefits steady aggregate demand and prevent a consumption collapse at first, but over time a lower cost of being unemployed can lengthen job search, pushing frictional unemployment and the natural rate up. |
| 10 | It ignores frictional and structural unemployment, and jobs must match the people | Every economy has frictional unemployment from graduations and job changes, and structurally unemployed workers may not fit new posts; forcing the rate to zero would only create wasteful jobs and inflationary pressure. |
04 What to do after marking
- After marking, redo only the wrong items and write down which step went wrong (formula, unit, or misread number).
- Repeat the same item two days later; move to the next paper only when both attempts are correct.
- Parents only need the answer and note columns; there is no need to explain every item.
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