P- adult population, L-labor force, E- employed, U-unemployed, L=E+U, e-E/P-employment rate, m=L/P-participation rate, u=U/L - unemployment rate, U+E=L, u+e=1, a-accession rate, s-separation rate, ut+1= ut+set-aut, Aut+1= s(1-ut)-aut, steady-state unemployment rate = s/(s+a), A=1-(s+a)-speed-of-adjustment parameter; smaller à corresponds to a more dynamic labor market. Assume 0

P- adult population, L-labor force, E- employed, U-unemployed, L=E+U, e-E/P-employment rate, m=L/P-participation rate, u=U/L - unemployment rate, U+E=L, u+e=1, a-accession rate, s-separation rate, ut+1= ut+set-aut, Aut+1= s(1-ut)-aut, steady-state unemployment rate = s/(s+a), A=1-(s+a)-speed-of-adjustment parameter; smaller à corresponds to a more dynamic labor market. Assume 0

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

P- adult population, L-labor force, E- employed, U-unemployed, L=E+U, e-E/P-employment rate, m=L/P-participation rate, u=U/L-
unemployment rate, U+E=L, u+e=1, a-accession rate, s-separation rate, ut+1= ut+set-aut, Aut+1= s(1-ut)-aut, steady-state
unemployment rate = s/(s+a), A=1-(s+a)-speed-of-adjustment parameter; smaller A corresponds to a more dynamic labor market.
Assume 0 <s+a < 1.
If capital K=const, then with the Cobb-Douglas production function the demand for labor is
L-K(p(1-a)A/w)1/a, where p is price of one unit of output, w is wage.
Given a=0.4, s=0.02,
Find the steady-state unemployment rate.
OA. 4.8%
OB.2.6%
OC. 6.3%
OD.7.6%

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