Question

The rate of job separation is 0.02 per month and the rate of job finding is 0.18 per month, what is the aatural rate of unemployment? The labor force is 1,000 in the economy. How many workers are unemployed?

Answer 1

The natural rate of unemployment in this economy is 16%. There are 160 unemployed workers.

Step-by-step explanation:

To calculate the natural rate of unemployment, we need to subtract the rate of job finding (0.18 per month) from the rate of job separation (0.02 per month). This difference represents the net change in employment. The formula for the natural rate of unemployment is the net change in employment divided by the total labor force, multiplied by 100 to express the result as a percentage.

In this case, the net change in employment is 0.02 - 0.18 = -0.16 per month (negative because there are more separations than findings). The total labor force is 1,000 people.

The natural rate of unemployment is calculated as (-0.16 / 1,000) * 100 = -16%. However, unemployment rates are typically expressed as positive percentages, so the absolute value of the result is taken. Therefore, the natural rate of unemployment in this economy is 16%.

To calculate the number of unemployed workers, we multiply the natural rate of unemployment by the labor force: 16% * 1,000 = 160 workers.