Question

Chay b. The and that sup tot by c. N it experience reakup of their relationship every month. uninvolved people, 5 percent enter nces Amon relationship every month. What is the ment into a dy-state fraction of residents who are uninvolved? ork his chapter we saw that the steady-state 3. rate of unemployment is U/L = s/(s +f). that the unemployment rate does th Suppose not begin ment will evolve over time and reach this steady state. (Hint: Express the change in the at this level. Show that unemploy se umber of unemployed as a function of s.f and U.Then show that if unemployment is above the natural rate, unemployment falls, and if unemployment is below the natural rate, unemployment rises.)

Answer 1

A steady state rate of unemployment is a state in which the unemployment rate does not change (AU-0) Assume that the labor force L is composed of employed workers E and unemployed workers U. This implies L + U. There is no steady state currently so that the number of workers getting employed is less than the number of workers being laid off. ΔU > 0 orfU < sE . Substitute the value E-L-U in the equation and find that (f +s)> s The right hand side is the steady state rate of unemployment. Currently the unemployment is more than the steady state level so that with time, the rate of unemployment will fall and reach its steady state. This occurs because workers will be willing to work at a lower wage due to unemployment so fwill rise and s will fall Similarly when the rate of unemployment is lower than the steady state, the rate of unemployment will increase to reach its steady state