Suppose that the rate of job separation is 2% and the job-finding rate is 18%.
a. What is the natural rate of unemployment?
b. If the job-finding rate doubles, what is the new natural rate of unemployment?
c. Return to the original scenario. If the rate of job separation is cut in half, what is the new natural rate of unemployment?
d. Which has more impact: a doubling of the job finding rate or a halving of the job-separation rate? Does your result have any implications for government policy?