Tutorial_CHAP06

Tutorial_CHAP06 - CH APT ER 6 U nemployment A Pow er Point...

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1 ® A PowerPoint Tutorial To Accompany MACROECONOM I CS, 6th. ed. N. Gregory Mankiw By Mannig J. Simidian
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The average rate of unemployment around which the economy fluctuates is called the natural rate of unemployment. The natural rate is the rate of unemployment toward which the economy gravitates in the long run. Let’s start with some fundamental equations that will build a model of labor-force dynamics that shows what determines the natural rate. L = E + U L = E + U Labor force is composed of Number of employed workers Number of unemployed workers
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3 Chapter Six f U U = = s E E Number of people finding jobs Number of people loosing jobs Steady-state unemployment rate From an earlier equation, we known that E = L – U, that is the number of employed equals the labor force minus the number of unemployed. If we substitute ( L-U ) for E in the steady-state condition, we find: U = U = (L – U) (L – U) Then, divide both sides by L and to obtain: U/L = U/L = (1-U/L) (1-U/L) Now solve for U/L for find : U/L = U/L = s / (s +
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4 Chapter Six U/L = U/L = s / (s + f) This can also be written as: U/L = 1 U/L = 1 / (1+ f/ s) f/ s) This equation shows that the steady-state rate of unemployment U/L depends on the rates of job separation s and job finding f.
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5 Any policy aimed at lowering the natural rate of unemployment or increase the rate Similarly, any policy that affects the rate of job separation or job finding also changes the
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This note was uploaded on 04/29/2009 for the course ECO 3302 taught by Professor Avdjiev during the Spring '08 term at SMU.

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Tutorial_CHAP06 - CH APT ER 6 U nemployment A Pow er Point...

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