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ECON 7750 (1)
Chapter 7

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ECON 7750
Ryan Chahrour

Mankiw Ch. 7 (177-183) The average rate of unemployment in the US is usually around 5 to 6% Natural rate of unemployment – the average rate of unemployment around which the economy fluctuates, the economy gravitates towards this in the long-run The Labor Force is the sum of the employed and unemployed: L = E + U - The rate of unemployment is L/U If the unemployment rate is neither rising nor falling, then the number of people finding jobs must be equal to the number of people losing jobs: fU = sE where f is the rate of job finding and s is the rate of job separation.  Use this equation to find the steady-state unemployment rate. Substitute E = L – U into the equation above to get fU = s(L – U), divide by L, and solve for the unemployment rate to find that U/L = 1/1+f/s  This shows that the steady state rate of unemployment (U/L) depends on s and f.  Implication: any policy aimed at lowering the natural rate o
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