A labour force of 1,200,000 has 120,000 unemployed: 24,000 frictional, 36,000 structural, 12,000 seasonal and 48,000 cyclical. A demand stimulus closes the output gap. What is the new rate?

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Question

A labour force of 1,200,000 has 120,000 unemployed: 24,000 frictional, 36,000 structural, 12,000 seasonal and 48,000 cyclical. A demand stimulus closes the output gap. What is the new rate?

Accepted Answer

6% — Award 1 mark. Working: the cyclical 48,000 is removed, leaving 72,000 out of 1,200,000. That remainder is the natural rate, and demand policy can go no further.

Answer

6%

Answer

4%

Answer

3%

Answer

10%

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