Term 2 week 9

Question 1

What is the unemployment rate?

Answer 1

Those who are not working who:
looking for a job
ready to start work

Question 2

What is the labour force?

Question 3

What is the employment rate?

What is the difference for unemployment rate?

What is the participation rate?

Answer 3

1.The number of employed people compared to the working population

2. those who are unemployed as a fraction of the labour force
3. The number of active labour force compared to adult population

Question 4

What is the natural rate of unemployment?

Answer 4

The long run level of unemployment

Question 5

How does the participation rate link to business cycles

Answer 5

-No real trend
-Less volatile than GDP

Question 6

What is the trend of wage?

Answer 6

wages have been increasing and they are correlated with wages.

Question 7

What is the trend of unemplyoment and business cycles?

Answer 7

Unemployment is highly countercyclical and persistent.

Question 8

What is the trend of the participation rate?

What is the trend in the real wages?

What about disparity in wages?

Answer 8

Participation rate has been increasing but recently has decreased.

-Real wages are increasing in the long term

Question 9

How is unemployment in RBC model different from real life?

Answer 9

Unemplloyment is acyclical but much less volatile.

Question 10

How can nominal rigidities explain unemployment?

Answer 10

-If there is a negative demand shock
-and the wage is rigid this means that there will be unemployment.

Question 11

What is the labour market diagram

Question 12

What are the reasons behind wage rigidities?

Answer 12

• long term contracts - wages are agreed in advance
  -law like min wage laws
  -efficiency wages , lowering wages decreases productivity.
  -union and collective bragaining.

Question 13

Whatis a one sided search model?

What is a two sided search model?

Answer 13

We only care about the behaviour of the unemployed workers.

Question 14

What does the value of being employed depend on?

What does the value of being unemployed depend on?

Answer 14

Inreasing but concave function of the wave
-Decreasing in the separation rate

-Unemployed value, increasing of benefits

-increasing in the probability of getting a job next period. (as they will get more picky and hence not commit to a job)

Question 15

What does the one-sided search model look like graphically?

What is the intersection of this?

Answer 15

wage x axis
Welfare y axis

The employed one is a concave function
The unemployed one is a constant horizontal line,

They intersect at the reservation wage

Question 16

What is the reservation wage?

Graphically what would an increase in the unemployment benefit cause?

Answer 16

-The lowest wage in which a worker will accept to work

-Would cause the horizontal kine to shift up which would increase the reservation wage

Question 17

How do you compute the long-term unemployment rate?

Question 18

What is the long-run equilibrium unemployment and how is it computed?

Answer 18

H(w) is the fraction of unemployed workers that get a wage greater than w

flow of workers from employment to unemployment = (1-u) . s

flow of workers from unemployment to employment is UpH(w)

Question 19

What does the one-sided search model say about unemployment?

Answer 19

it says that it relies heavily on the unemployment benefit as it impacts the incentives.

Question 20

What is the set up of the search model?

Answer 20

U = fraction of unemployed
1-U is fraction of employed

every period fraction s lose job, this is the separation rate.

unemployed get benefits b

with prob p they get job offer

Question 21

What is H(w) graphically?

Answer 21

Stepping and curved graph

Question 22

in the long run when will unemployment be constant?

Answer 22

when s . (1-u) = UpH(w)

Question 23

Graphically how do you show the long run unemployment

Answer 23

Graph the inflow of workers and the outflow of workers
inflow into employment upward sloping

Question 24

What happens to the flow of worker diagram when there is an increase in the unemployment benefit?

Answer 24

The flow of emplyoment pivots down as the fraction of people getting an acceptable offer decreases.

Question 25

What does the one sided search model show?

Answer 25

Shows the incentive of job seekers and what drives them to make decisions.