Assume, as in the example in the book, that the job separation rate s is 0.01...

Assume, as in the example in the book, that the job separation rate s is 0.01 (1%)

per month and that the job finding rate f is 0.2 (20%) per month.
Assume that the labor force is 100 million.

(a) What is the steady state unemployment rate for this economy?

(b) Given that L = 100 million, what is the steady state number of employed E and unemployed U ?

(c) If U.S. immigration policy changed today (period t = 1) such that we allowed more people to enter the country and L increased to 110 million from its initial value of 100 million. Assume that these new entrants would be unemployed first and then find jobs at the job finding rate f . Create a table (maybe in Excel) that shows how E, U , and U/L evolve over time, givens = 0.01 and f = 0.2, starting at t = 1 and ending when the unemployment rate reaches its steady state rounded to the nearest thousandth.

(d) In the table from the previous scenario, how many periods does it take for the unemployment rate to reach its steady state level rounded to the nearest thousandth?

Solutions

Expert Solution

Rahul Sunny answered 2 years ago

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