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In the model of the labor market presented in chapter 7 of the Blanchard book, there are two ways to think about an increase in
In the model of the labor market presented in chapter 7 of the Blanchard book, there are two ways to think about an increase in unemployment: either it reflects a rise in the natural rate of unemployment, or a movement of the actual rate away from the natural rate. How would we distinguish between these two possibilities? In other words, if someone believed the model was a good description of reality, how would they decide if a given increase in unemployment reflected an increase in the natural rate?
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