Question
READ THE SCENARIO BELOW AND ANSWER THE QUESTIONS THAT FOLLOW. Scenario A The novel coronavirus continues to affect several countries around the world. As of
READ THE SCENARIO BELOW AND ANSWER THE QUESTIONS THAT FOLLOW.
Scenario
A The novel coronavirus continues to affect several countries around the world. As of November 12, 2020, the World Health Organization reported 51.8 million cases and 1.28 million deaths globally. As part of the public health response to limit the spread of the virus, several countries have chosen to close their borders to foreign visitors, and in many ways, these countries now operate as pseudo-closed economies. Additionally, several businesses in the services sector, including bars, hair salons and restaurants, have been forced to close to limit potential community spread. These and other restrictions have negatively affected economic activity as businesses remain closed and people stay at home. One such country that has had this experience is Caribe Isla, a small island nation located in the West Atlantic. Furthermore, in light of the economic decline, the government has articulated a recovery plan to transition the economy out of its current recession. Answer the following four questions based on Caribe Isla's experience in managing its economy in the face of the COVID19 pandemic.
QUESTION
a. Before the pandemic, the job separation rate and the job-finding rate were, 7% and 4%, respectively. However, they are now, 12% and 2%, respectively. Given this information, calculate the change in the natural rate of unemployment.
b. If the steady-state rate of unemployment equals 0.14 and the fraction of unemployed workers who find jobs each month is 0.42, determine the fraction of employed workers who lose their jobs each month.
c. If the steady-state rate of unemployment equals 0.24 and the fraction of employed workers who lose their jobs each month is 0.13, determine the fraction of unemployed workers who find jobs each month.
d. Graphically illustrate wage rigidity in a labour market and identify three causes of wage rigidity.
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