Question

If the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.01 and the fraction of the unemployed who find a job each month is 0.09 (the rate of job findings), then the natural rate of unemployment is:

Answer 1

Answer:

10%

Explanation:

By using the formula

rate of job separations / (rate of job separations + rate of job findings)

The natural rate of unemployment =

.01/(.01+.09)= 10%

Note that the natural rate of unemployment is measure of unemployment level considering all other factors are in equal or in equilibrium in the economy.