Take our canonical model for unemployment flows with a law of motion: Ut+1 = Ut + St (1 — ut) — ftut 1. Suppose we begin in t = 0 with ft = 0.39 and st=0.01. The unemploy- ment rate in period 0 is 2%. What is the unemployment rate in period 1 and in period 2? 2. What is the steady state unemployment rate? 3. What is the average duration of unemployment? = 4. Suppose there's a recession in t = 1 the finding rate goes down to fi 0.29. Now, what is the new steady state unemployment rate in t = 1 and what is the actual unemployment rate in t = 1. Are they very different? 5. In this new recession, what is the average unemployment duration? 6. Now suppose that recession is composed of two types of workers, 50% who feel no effect and their f 0.39 and another half who feel a very large effect, f = 0.19%. What is the steady state unemployment in this new type of recession and is it different from the one where everyone's finding rate fell to 0.29. What is the average duration of unemployment in this new type of recession and is it different from the one where everyone's finding rate fell to 0.29. -

Take our canonical model for unemployment flows with a law of motion: Ut+1 = Ut + St (1 — ut) — ftut 1. Suppose we begin in t = 0 with ft = 0.39 and st=0.01. The unemploy- ment rate in period 0 is 2%. What is the unemployment rate in period 1 and in period 2? 2. What is the steady state unemployment rate? 3. What is the average duration of unemployment? = 4. Suppose there's a recession in t = 1 the finding rate goes down to fi 0.29. Now, what is the new steady state unemployment rate in t = 1 and what is the actual unemployment rate in t = 1. Are they very different? 5. In this new recession, what is the average unemployment duration? 6. Now suppose that recession is composed of two types of workers, 50% who feel no effect and their f 0.39 and another half who feel a very large effect, f = 0.19%. What is the steady state unemployment in this new type of recession and is it different from the one where everyone's finding rate fell to 0.29. What is the average duration of unemployment in this new type of recession and is it different from the one where everyone's finding rate fell to 0.29. -

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

1 Flows into and out of unemployment
Take our canonical model for unemployment flows with a law of motion:
Ut+1 = Ut + St (1 — Ut) — ftut
1. Suppose we begin in t=0 with ft = 0.39 and st = 0.01. The unemploy-
ment rate in period 0 is 2%. What is the unemployment rate in period 1
and in period 2?
2. What is the steady state unemployment rate?
3. What is the average duration of unemployment?
=
4. Suppose there's a recession in t = 1 the finding rate goes down to fi
0.29. Now, what is the new steady state unemployment rate in t = 1 and
what is the actual unemployment rate in t = 1. Are they very different?
=
5. In this new recession, what is the average unemployment duration?
6. Now suppose that recession is composed of two types of workers, 50% who
feel no effect and their f = 0.39 and another half who feel a very large
effect, f = 0.19%. What is the steady state unemployment in this new
type of recession and is it different from the one where everyone's finding
rate fell to 0.29. What is the average duration of unemployment in this
new type of recession and is it different from the one where everyone's
finding rate fell to 0.29.

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