Chapter6

# Chapter6 - CHAPTER6 Unemployment APowerPoint Tutorial...

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1 Chapter Six CHAPTER 6 Unemployment ® A PowerPoint Tutorial To Accompany   MACROECONOMICS, 7th. Edition N. Gregory Mankiw Tutorial written by: Mannig J. Simidian B.A. in Economics with Distinction, Duke University  M.P.A., Harvard University Kennedy School of Government M.B.A., Massachusetts Institute of Technology (MIT) Sloan School of Management

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2 Chapter Six Using this notation, the rate of unemployment is U/L. Now, we’ll denote the rate of job separation as s . Let f denote the rate of job finding. Together these determine the rate of unemployment. 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 Labor force is composed of is composed of Number of employed workers Number of employed workers Number of unemployed workers Number of unemployed workers
3 Chapter Six f   f   U U = = E E Number of people finding jobs Number of people finding jobs Number of people loosing 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: f   f   U = U = (L – U) (L – U) Then, divide both sides by L and to obtain: f   f   U/L = U/L = (1-U/L) (1-U/L) Now solve for U/L for find : U/L = U/L = s / (s + f) s / (s + f)

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4 Chapter Six U/L = U/L = s / (s + f) s / (s + f)
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Chapter6 - CHAPTER6 Unemployment APowerPoint Tutorial...

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