Question 2Consider the following model of the labour market:60 = E; + UtUt+1 = UtUt +Et,3where E, denotes the number of employed persons (in period t) and U; denotes the numberof unemployed persons (both measured in millions).a) Interpret the above equations and calculate steady-state unemployment.b) Assume the economy is initially in a steady state. Suppose that structural changes inthe labour market result in the job-finding rate decreasing by half. Using anappropriate diagram, analyse and explain the impact on unemployment of this shock.

Consider the following model of the labour market: 60 = Et + Ut Ut+1 = Ut − ² · Ut + ² · Et, - where Et denotes the number of employed persons (in period t) and U, denotes the number of unemployed persons (both measured in millions). a) Interpret the above equations and calculate steady-state unemployment.

Consider the following model of the labour market: 60 = Et + Ut Ut+1 = Ut − ² · Ut + ² · Et, - where Et denotes the number of employed persons (in period t) and U, denotes the number of unemployed persons (both measured in millions). a) Interpret the above equations and calculate steady-state unemployment.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter18: Introduction To Macroeconomics: Unemployment, Inflation, And Economic Fluctuations

Section: Chapter Questions

Problem 2P

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