The natural rate of unemployment when there is a change in the various types of unemployment. Concept Introduction: Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

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Answer 1

Question

Chapter 10, Problem 1.1P

Sub-part

A

To determine

The natural rate of unemployment when there is a change in the various types of unemployment.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

A

Expert Solution

Explanation of Solution

The natural unemployment rate is all unemployment other than cyclical. That implies it as the sum of frictional, seasonal, and structural unemployment. So cyclical unemployment is 2% + 2% + 0.5% = 4.5%

The cyclical unemployment rate is zero under natural rate of unemployment. Since the cyclical unemployment is 2%, so the economy is operating at 2% percent less than its potential GDP.

Sub-part

B

To determine

The natural rate of unemployment when there is a rise in the cyclical unemployment keeping other types of unemployment as unchanged.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

B

Expert Solution

Explanation of Solution

Natural rate of unemployment remains unchanged with cyclical GDP going upto 3%. Since the cyclical unemployment is 3%, so the economy is operating at 3% percent less than its potential GDP.

Sub-part

C

To determine

The natural rate of unemployment when structural unemployment falls keeping other types of unemployment as unchanged.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

C

Expert Solution

Explanation of Solution

Natural rate of unemployment will reduce to 4% as structural unemployment reduces to 1.5% from 2%. Cyclical unemployment remains the same, but natural rate of unemployment is now 45. So it is 0.5 % closer to potential GDP.

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Consider the simple discrete job search model that we studied in class. Only the unemployed can receive one offer per period from F(w) that is a uniform distribution on [0,2]. There is a constant probability of being laid off at the end of each period while employed. Assume that she can get a new offer right away when laid off. We want to understand the reservation wage, WR, in this model. Assume that u(c) = c. The parameters are a discount factor ẞ and an unemployment benefit b.R and show that T is contraction on [0, ∞). Explicitly state any additional assumptions that you may need.(Grading guide line: 5pt for the exact form of T, 10pt for showing contraction, and 5pt for stating correct assumptions.)< (b) Discuss why (a) is useful to understand the reservation wage wд in this economy.< (c) We write WR = WR (b,ẞ,λ) to reveal its dependence on (b,ẞ,λ). Show that 0 ≤ aWR дь OWR дл ≤1 and ≥0. What about ? awR ав State any additional assumptions that you may need.< (d) Briefly explain the…

Answer 2

Question

Chapter 10, Problem 1.1P

Sub-part

A

To determine

The natural rate of unemployment when there is a change in the various types of unemployment.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

A

Expert Solution

Explanation of Solution

The natural unemployment rate is all unemployment other than cyclical. That implies it as the sum of frictional, seasonal, and structural unemployment. So cyclical unemployment is 2% + 2% + 0.5% = 4.5%

The cyclical unemployment rate is zero under natural rate of unemployment. Since the cyclical unemployment is 2%, so the economy is operating at 2% percent less than its potential GDP.

Sub-part

B

To determine

The natural rate of unemployment when there is a rise in the cyclical unemployment keeping other types of unemployment as unchanged.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

B

Expert Solution

Explanation of Solution

Natural rate of unemployment remains unchanged with cyclical GDP going upto 3%. Since the cyclical unemployment is 3%, so the economy is operating at 3% percent less than its potential GDP.

Sub-part

C

To determine

The natural rate of unemployment when structural unemployment falls keeping other types of unemployment as unchanged.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

C

Expert Solution

Explanation of Solution

Natural rate of unemployment will reduce to 4% as structural unemployment reduces to 1.5% from 2%. Cyclical unemployment remains the same, but natural rate of unemployment is now 45. So it is 0.5 % closer to potential GDP.

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Answer 3

Question

Chapter 10, Problem 1.1P

Sub-part

A

To determine

The natural rate of unemployment when there is a change in the various types of unemployment.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

A

Expert Solution

Explanation of Solution

The natural unemployment rate is all unemployment other than cyclical. That implies it as the sum of frictional, seasonal, and structural unemployment. So cyclical unemployment is 2% + 2% + 0.5% = 4.5%

The cyclical unemployment rate is zero under natural rate of unemployment. Since the cyclical unemployment is 2%, so the economy is operating at 2% percent less than its potential GDP.

Sub-part

B

To determine

The natural rate of unemployment when there is a rise in the cyclical unemployment keeping other types of unemployment as unchanged.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

B

Expert Solution

Explanation of Solution

Natural rate of unemployment remains unchanged with cyclical GDP going upto 3%. Since the cyclical unemployment is 3%, so the economy is operating at 3% percent less than its potential GDP.

Sub-part

C

To determine

The natural rate of unemployment when structural unemployment falls keeping other types of unemployment as unchanged.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

C

Expert Solution

Explanation of Solution

Natural rate of unemployment will reduce to 4% as structural unemployment reduces to 1.5% from 2%. Cyclical unemployment remains the same, but natural rate of unemployment is now 45. So it is 0.5 % closer to potential GDP.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 10, Problem 1.1P

Sub-part

A

To determine

The natural rate of unemployment when there is a change in the various types of unemployment.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

A

Expert Solution

Explanation of Solution

The natural unemployment rate is all unemployment other than cyclical. That implies it as the sum of frictional, seasonal, and structural unemployment. So cyclical unemployment is 2% + 2% + 0.5% = 4.5%

The cyclical unemployment rate is zero under natural rate of unemployment. Since the cyclical unemployment is 2%, so the economy is operating at 2% percent less than its potential GDP.

Sub-part

B

To determine

The natural rate of unemployment when there is a rise in the cyclical unemployment keeping other types of unemployment as unchanged.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

B

Expert Solution

Explanation of Solution

Natural rate of unemployment remains unchanged with cyclical GDP going upto 3%. Since the cyclical unemployment is 3%, so the economy is operating at 3% percent less than its potential GDP.

Sub-part

C

To determine

The natural rate of unemployment when structural unemployment falls keeping other types of unemployment as unchanged.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

C

Expert Solution

Explanation of Solution

Natural rate of unemployment will reduce to 4% as structural unemployment reduces to 1.5% from 2%. Cyclical unemployment remains the same, but natural rate of unemployment is now 45. So it is 0.5 % closer to potential GDP.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 10, Problem 1.1P

Sub-part

A

To determine

The natural rate of unemployment when there is a change in the various types of unemployment.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

A

Expert Solution

Explanation of Solution

The natural unemployment rate is all unemployment other than cyclical. That implies it as the sum of frictional, seasonal, and structural unemployment. So cyclical unemployment is 2% + 2% + 0.5% = 4.5%

The cyclical unemployment rate is zero under natural rate of unemployment. Since the cyclical unemployment is 2%, so the economy is operating at 2% percent less than its potential GDP.

Sub-part

B

To determine

The natural rate of unemployment when there is a rise in the cyclical unemployment keeping other types of unemployment as unchanged.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

B

Expert Solution

Explanation of Solution

Natural rate of unemployment remains unchanged with cyclical GDP going upto 3%. Since the cyclical unemployment is 3%, so the economy is operating at 3% percent less than its potential GDP.

Sub-part

C

To determine

The natural rate of unemployment when structural unemployment falls keeping other types of unemployment as unchanged.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

C

Expert Solution

Explanation of Solution

Natural rate of unemployment will reduce to 4% as structural unemployment reduces to 1.5% from 2%. Cyclical unemployment remains the same, but natural rate of unemployment is now 45. So it is 0.5 % closer to potential GDP.

Answer 6

Chapter 10, Problem 1.1P

Sub-part

A

To determine

The natural rate of unemployment when there is a change in the various types of unemployment.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

A

Expert Solution

Explanation of Solution

The natural unemployment rate is all unemployment other than cyclical. That implies it as the sum of frictional, seasonal, and structural unemployment. So cyclical unemployment is 2% + 2% + 0.5% = 4.5%

The cyclical unemployment rate is zero under natural rate of unemployment. Since the cyclical unemployment is 2%, so the economy is operating at 2% percent less than its potential GDP.

Answer 7

Chapter 10, Problem 1.1P

Sub-part

A

To determine

The natural rate of unemployment when there is a change in the various types of unemployment.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Answer 8

Sub-part

A

Expert Solution

Explanation of Solution

The natural unemployment rate is all unemployment other than cyclical. That implies it as the sum of frictional, seasonal, and structural unemployment. So cyclical unemployment is 2% + 2% + 0.5% = 4.5%

The cyclical unemployment rate is zero under natural rate of unemployment. Since the cyclical unemployment is 2%, so the economy is operating at 2% percent less than its potential GDP.

Answer 9

Sub-part

A

Expert Solution

Answer 10

Sub-part

A

Expert Solution

Answer 11

Expert Solution

Answer 12

Sub-part

B

To determine

The natural rate of unemployment when there is a rise in the cyclical unemployment keeping other types of unemployment as unchanged.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

B

Expert Solution

Explanation of Solution

Natural rate of unemployment remains unchanged with cyclical GDP going upto 3%. Since the cyclical unemployment is 3%, so the economy is operating at 3% percent less than its potential GDP.

Answer 13

Sub-part

B

To determine

The natural rate of unemployment when there is a rise in the cyclical unemployment keeping other types of unemployment as unchanged.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Answer 14

Sub-part

B

Expert Solution

Explanation of Solution

Natural rate of unemployment remains unchanged with cyclical GDP going upto 3%. Since the cyclical unemployment is 3%, so the economy is operating at 3% percent less than its potential GDP.

Answer 15

Sub-part

B

Expert Solution

Answer 16

Sub-part

B

Expert Solution

Answer 17

Expert Solution

Answer 18

Sub-part

C

To determine

The natural rate of unemployment when structural unemployment falls keeping other types of unemployment as unchanged.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Sub-part

C

Expert Solution

Explanation of Solution

Natural rate of unemployment will reduce to 4% as structural unemployment reduces to 1.5% from 2%. Cyclical unemployment remains the same, but natural rate of unemployment is now 45. So it is 0.5 % closer to potential GDP.

Answer 19

Sub-part

C

To determine

The natural rate of unemployment when structural unemployment falls keeping other types of unemployment as unchanged.

Concept Introduction:

Natural Rate of Unemployment: The natural rate of unemployment is the unemployment rate under the equilibrium condition.The natural rate of unemployment is the variation between the number of people who would prefer a job in the current wage rate and the number of people who are able to take that job at the current rate. It includes all type of unemployment other than cyclical unemployment.

Answer 20

Sub-part

C

Expert Solution

Explanation of Solution

Natural rate of unemployment will reduce to 4% as structural unemployment reduces to 1.5% from 2%. Cyclical unemployment remains the same, but natural rate of unemployment is now 45. So it is 0.5 % closer to potential GDP.