Question

Assume in 2019 the rate of job separation is 1% and the rate of job finding is 19%. In 2020 during a recession, 85 out of every 1000 employed workers become separated from their jobs while 21 out of every 100 unemployed workers find jobs.

a. what is the natural rate of unemployment during the recession?

b. what is the percent change in the unemployment rate between 2019 and 2020?

c. describe a governmental program that will decrease the unemployment rate

Answer 1

a. Natural Rate of Unemployment = s / (s + f)

where s = job separation rate

f = job finding rate

Natural Rate of Unemployment during ressesion = 8.5 / (8.5 + 21)

= 0.288

b.

Unemployment Rate in 2019 = 1 / (1+19)

= 0.05

% change in unemployment = (Unemployment in 2020 - Unemployment in 2019) / Unemployment in 2019

= (0.288- 0.05) / 0.05

= 4.76

c.

Unemployment rate can be decrease if it is able to lower s and increase f.

The government can give unemployment insurance to the workers. Insurance pays a part of the worker's former wages for a limited time period after they lose jobs. It will reduce the opportunity cost of searching new job. And helps in controlling the unemployment rate.

Federal Government of USA is currently giving people affected by COVID 19 unemployment insurance to control the rate in the economy.

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