Question No. 3

Suppose the number of people employed (E) is currently 100 and the number unemployed (U) is 10 and the labor force is fixed at 110. The monthly separation rate (s) is 0.01 and the finding rate (f) is 0.18.

A. What is the current rate of unemployment?

B What is the natural rate of unemployment?

C Demonstrate how the unemployment rate will evolve to the natural rate over time. How long will it take? Easier to do in EXCEL. Recall:U = s x E-f x U.

Know the process.