If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the cyclical unemployment rate is:

• A. 5 percent
• B. 4 percent
• C. 14 percent
• D. 9 percent

Answer: (B)

Verified step by step guidance

1. Understand the definitions: The unemployment rate is the total percentage of the labor force that is unemployed. The natural rate of unemployment is the long-term average rate of unemployment, reflecting frictional and structural unemployment.
2. Recall the formula for cyclical unemployment rate: It measures the deviation of the actual unemployment rate from the natural rate. The formula is: \(\text{Cyclical Unemployment Rate} = \text{Actual Unemployment Rate} - \text{Natural Rate of Unemployment}\).
3. Substitute the given values into the formula: Actual Unemployment Rate = 9%, Natural Rate of Unemployment = 5%. So, \(\text{Cyclical Unemployment Rate} = 9\% - 5\%\).
4. Calculate the difference to find the cyclical unemployment rate, which represents unemployment caused by economic downturns or booms.
5. Interpret the result: A positive cyclical unemployment rate indicates higher unemployment than the natural rate, often due to a recession, while a negative value would indicate a labor market better than normal.