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

• A. frictional unemployment rate is 4 percent
• B. cyclical unemployment rate is 4 percent
• C. structural unemployment rate is 9 percent
• D. natural rate of unemployment is 4 percent

Answer: (B)

Verified step by step guidance

1. Understand the key terms: The unemployment rate (u) is the total percentage of the labor force that is unemployed. The natural rate of unemployment (u*) includes frictional and structural unemployment, representing the baseline unemployment when the economy is at full employment.
2. Recall the relationship between unemployment rates: The total unemployment rate is the sum of the natural rate of unemployment and the cyclical unemployment rate. Mathematically, this is expressed as: \(u = u^* + u_c\), where \(u_c\) is the cyclical unemployment rate.
3. Identify the given values: The total unemployment rate \(u\) is 9%, and the natural rate of unemployment \(u^*\) is 5%.
4. Calculate the cyclical unemployment rate by rearranging the formula: \(u_c = u - u^*\). Substitute the known values to express the cyclical unemployment rate in terms of the given numbers.
5. Interpret the result: The cyclical unemployment rate represents the deviation from the natural rate due to economic fluctuations. This helps determine which answer choice correctly identifies the cyclical unemployment rate.