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ioda
3 years ago
13

Using a neoclassical model, what will the level of cyclical unemployment be when an economy is producing at potential GDP?

Business
1 answer:
MakcuM [25]3 years ago
8 0

Answer:

<em>Zero</em>

Explanation:

There are three(3) types of unemployment recognized by economists;

<em>Structural unemployment:</em> This occurs where innovation and technological improvement render workers unemployable because their is a mismatch between the available jobs and the skills possessed by willing workers. For example, the introduction of online classes might  reduce the number of teachers needed by a school.

<em>Frictional unemployment:</em> This is used to describe the number of people looking for jobs because they are transiting from one job to another.The addition of the structural and frictional is know as the <em>natural rate of of unemployment.</em>

<em>Cyclical unemployment</em><em>:</em><em> </em>this is caused by fluctuation in real GDP around the potentila GDP. For example, when the real GDP falls significantly for a sustained period of six month. At a time like this, the economy is contracting and it is evident by a negative growth rate in real output, firms do lay off workers because the business climate is not favorable.This is called <em>recession</em>. The cyclical unemployment is the difference between the actual rate of unemployment and natural rate. During recession, the actual is always greater thant the natural; and the balance is cyclical unemployement

<em>Full employment output and cyclical unemployment</em>

The potential GDP is the level of real GDP achieved where an economy has fully employed all of its resources ( land, labour, capital and entrepreneur). It is also called <em>full employment GDP</em>. An economy operating at its potential GDP level will still record some level of unemployment which is known as natural unemployment. And its actual rate of unemployment will be equal to the natural rate.

<em>In other words, at the full employment output  level, the actual rate of unemployment is the same the natural rate of unemployement. So there is zero cyclical unemployment rate</em>

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Answer:

(a) P(X\:>\:5.40)=0.9938

(b) P(X\:

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Explanation:

(a) Find the z-value that corresponds to 5.40 percent

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The area to the left of 2.5 from the standard normal distribution table is 0.9938.The probability that a randomly selected U.S. bank will have a net interest margin that exceeds 5.40 percent is 1-0.9938=0.0062

(b) The z-value that corresponds to 4.40 percent is Z=\frac{4.40-4.15}{0.5}=0.5The net interest margin of 4.40 percent is 0.5 standard deviation above the mean.

Using the normal distribution table, the area under the curve to the left of 0.5 is 0.6915

Therefore the probability that a randomly selected U.S. bank will have a net interest margin less than 4.40 percent is 0.6915

(c)  The z-value that corresponds to 95% which is 1.65

We substitute the 1.65 into the formula and solve for X.1.65=\frac{X-4.15}{0.5}

1.65\times 0.5=X-4.150.825=X-4.15

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A bank that wants its net interest margin to be less than the net interest margins of 95 percent of all U.S. banks should set its net interest margin to 4.975 percent.

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