Tutorial #3: Tricky Timing for Class of 2016

What is the unemployment rate?

- 5.5%
What is the underemployment rate?
- 12.3%
Why do students find themselves in this predicament?
- There are more university students than jobs in the economy
- Students are trying to pay off their debts, so wages are falling
What could the government have done to restore the economy back to full employment?
- Invested in increased government spending, infrastructure, health care, education
which would increase consumer spending

Statistics Canada announced that in April 2012, of all Canadians aged 15 years and older,
17,494,700 were employed, 1,370,600 were unemployed, and 9,376,700 were not in the labour
force.
a) How big was the labour force?
A: 18,865,300
b) What was the labour force participation rate?
LFPR = (LF/Adult Pop.) (100)
(18,865,300/28,242,000) (100)
A: 66.8%
c) What was the unemployment rate?
Unemployment Rate = (Unemployed/LF) (100)
(1,370,600/18,865,300) (100)
A: 7.3%
d) What was the employment rate?
(Employed/Adult Pop.) (100)
A: 61.9%

Why is frictional unemployment inevitable? How might the government reduce the amount of
frictional unemployment?
- The economy is always changing, new graduates every year, people are changing jobs
- Public training programs help find jobs people want and they can acquire more skills

Suppose that people expect inflation to be 3%, but in fact prices rise by 5%. Describe how this
unexpectedly high inflation rate would help or hurt the following:
a) The government
A: Help government because they would be getting more tax revenue than expected
b) A homeowner with a fixed-rate mortgage
A: Help because they are paying less than they should be paying (pays lower real
interest rate than expected)
c) A union worker in the second year of a labour contract
A: Hurt because they are experiencing lower than expected real wages
d) A college or university student that invested some of its endowment in government
bonds
A: Hurt because the college or university is receiving a lower real interest rate than it
had planned