A. Assume the rate of job finding is 25% and the rate of job separation is...

A. Assume the rate of job finding is 25% and the rate of job separation is 10%, the natural rate of unemployment is ___%. (Round your answer to 1 decimal place.)

B. Assume the rate of job finding is 25% and the rate of job separation is 10%. If the rate of job separation falls to 5%, the new natural rate of unemployment is ___%. (Round your answer to 1 decimal place.)

C. Assume the rate of job finding is 25% and the rate of job separation is 10%. Suppose, instead, that the rate of job finding increases to 30%, the new natural rate of unemployment is ___%. (Round your answer to 1 decimal place.)

Expert Solution

Natural rate of unemployment = s/(s+f)

where s = job separation rate, f = job finding rate

(a) Natural rate of unemployment = 0.10/(0.10 + 0.25) = 0.1/0.35 = 28.6%

(b) Natural rate of unemployment = 0.05/(0.05+0.25) = 0.05/0.30 = 16.7%

(c) Natural rate of unemployment = 0.10/(0.10+0.3) = 0.1/0.4 = 25%

Rahul Sunny answered 2 years ago

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