Please help me... Could you explain how to get the answer (d) and (e)? 2. A mode

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Please help me...

Could you explain how to get the answer (d) and (e)?

2. A model of unemployment. Recall the model of long-run unemployment: E' f.U+(1-8) . E = where E denotes current employment, U denotes current unemployment, s denotes the separation rate, f denotes the job finding rate, and E' and U" denote future employment and unemployment. As usual, we define the labor force as: and the unemployment rate as: Suppose that E 102.3 million and U-7.7 million and that f = 0.3 and s 0.015 Also suppose that the population is constant at 180 million people. (a) What is the initial unemployment rate!? (b) What is the initial labor force participation rate? c) What will be the levels of employment and unemployment in one period? That is, find E' and U'.

Explanation / Answer

(d) Calculate employment (E') in one period -

E' = f*U + (1-s)*E = 0.3*7.7 million + (1-0.015)*102.3 million = 103.07 million

Calculate unemployment (U') in one period -

U' = (1-f)*U + s*E = (1-0.3)*7.7 million + 0.015*102.3 million = 6.92 million

Calculate Labor Force (L') in one period -

L' = E' + U' = 103.07 million + 6.92 million = 109.99 million

Calculate the unemployment rate (u') in one period -

u' = U'/L' = 6.92 million/109.99 million = 0.0629 or 6.29%

The unemployment rate in one period will be 6.29 percent.

(e) Labor force in one period (L') = 109.99 million

Population = 180 million

Calculate labor force participation rate in one period -

Labor force participation rate = L'/Total population = 109.99 million/180 million = 0.6110 or 61.10%

The labor force participation rate in one period will be 61.10%.

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