If the rate of job separation is 1% and the rate of job finding is 10%,...

If the rate of job separation is 1% and the rate of job finding is 10%, the natural rate of unemployment is, approximately equal to

Question options:

	9%
	1%
	10%
	90%
	none of the above

Expert Solution

We have the equation:

FU = SE

where F is the job finding rate, S is the job separation rate, U is the rate of unemployment and E is the rate of employment. E can be written as E = 1 - U

Hence, we have:

U/1-U = S/F

U/1-U = 0.01/0.1 = 0.1

Rearranging, we get U = 0.1/0.9

Hence, U = 0.11111 or 11.1% (which is the natural rate of unemployment). Hence, it is approximately 10%

Rahul Sunny answered 2 years ago

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