321LecNote09Ch6

# 321LecNote09Ch6 - Instructor : Kim, H.H. Fall 2009...

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Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 1 Chapter 6. Unemployment In this chapter, you will learn: …about the natural rate of unemployment: what it means what causes it understanding its behavior in the real world Natural rate of unemployment Natural rate of unemployment : The average rate of unemployment around which the economy fluctuates. In a recession, the actual unemployment rate ______________ the natural rate. In a boom, the actual unemployment rate ______________ the natural rate. Actual and natural rates of unemployment in the U.S., 1960-2009

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Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 2 A first model of the natural rate Notation: L = # of workers in labor force E = ______________ U = ______________ U / L = ______________ Assumptions: 1. L is ______________ 2. During any given month, s = ____________________________ the fraction of employed workers that become separated from their jobs f = ____________________________, fraction of unemployed workers that find jobs s and f are ______________ The transitions between employment and unemployment The steady state condition Definition: the labor market is in _______________, or long-run equilibrium, if the unemployment rate is constant. The steady-state condition is: Employed Unemployed
Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 3 Finding the “equilibrium” U rate f × U = = = Solve for U / L : so, Example: Each month, 1% of employed workers lose their jobs ( s = 0.01) 19% of unemployed workers find jobs ( f = 0.19) Find the natural rate of unemployment: Policy implication A policy will _______________ the natural rate of unemployment only if it _______________ _______________. Why is there unemployment? If job finding were instantaneous ( f = 1), then all spells of unemployment would be brief, and the natural rate would be _________. There are two reasons why f < 1: 1. _______________

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Instructor : Kim, H.H. Intermediate Macro Analysis Fall 2009 Economics 01:220:321 4 2. _______________ Job search & frictional unemployment ______________________________ : caused by the time it takes workers to search for a job occurs even when wages are _______________ and there are _______________ to go around occurs because workers have different abilities, preferences jobs have ______________________________ ______________________________ of workers not instantaneous
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## This note was uploaded on 02/07/2011 for the course ECON 321 taught by Professor Sani during the Fall '08 term at Rutgers.

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321LecNote09Ch6 - Instructor : Kim, H.H. Fall 2009...

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