Question

If the rate of job separation is 0.02 and the rate of job finding is 0.10 but the current unemployment rate is 0.10, then the current unemployment rate is ______ the equilibrium rate, and in the next period it will move ______ the equilibrium rate. A) above; toward B) above; away from C) below; toward D) below; away from

Answer 1

Answer:

C) below; toward

Explanation:

Seperation rate is defined as the rate at which employees have left work either voluntarily or involuntarily in a specified period. In this instance it is 2%.

Unemployment is the rate at which people that are able to work are looking for employment. It is at 10%.

While job finding rate is 10%.

Job finding rate is equal to unemployment rate so they cancel out. However 2% of people are attributed to job seperation.

Unemployment rate will be below equillibrum, and because the people affected by job seperation are likely to get work again it will move towards the equillibrum rate in the next period.