Unemployment problem

Consider two hypothetical countries. In Country A, 27% of the labor force is unemployed for four months a
year. In Country B, 12% of the labor force is unemployed for nine months a year. Note that both countries
have an overall unemployment rate of 9%.

Discuss which of these countries seem to have a more serious unemployment problem and explain why.

In the late 1990s, the federal Minister of Finance announced that expenditures would rise, yet he still
predicted that the budget surplus would increase. How is it possible that in the face of rising expenditures,
the budget surplus may increase? Under which conditions might this happen and what is the likelihood that
tising expenditures will contribute to rising deficits?

Sample Solution

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