MACROECONOMICS 1 – 2nd-YEAR COURSE
Home Assignment
#09
EC1002 INTRODUCTION TO ECONOMICS
Due by Tuesday, April 14 11:59 am via icef-info.hse.ru/
2020
Unemployment
Pre-reading
 Read [BVFD], Ch. 23:
Unemployment
 Read [SG], Block 19: Unemployment
 Read
Lecture 12. Unemployment Macro1 L12 Unemployment.pdf
 Watch
Video lecture Macro1 L12 Unemployment
 Watch
Video lecture Macro1 L12 Unemployment+MCQ
Draw a table (see the template below) for your marks at the front page of your answer sheet
Your Team #
A1
A2
Your 4-digit number
C3
C4

Marks
SECTION A: Answer Multiple Choice Questions (20 marks)
Explain briefly why the chosen answer(s) is(are) right while the others are wrong (no marks will be
given for pure guessing!)
A1.
[10 marks] Which shock would increase the natural unemployment level in the (LD, AJ, LF)
framework?
(a) a rise in the popularity of online job search platforms
(b) a fall in unemployment benefits
(c) a defragmentation of labour unionisation structure
(d) an increase in social insurance contributions
A2.
[10 marks] Consider an economy with 20 million working age population, of which 12 million
are working, 2 million are searching for work, 1 million gave up searching, and the remaining 5
million are not willing to work. What is the employment rate and the unemployment rate in this
economy?
(a) 70% and 14% correspondingly
(b) 60% and 13% correspondingly
(c) 75% and 13% correspondingly
(d) 60% and 14% correspondingly
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SECTION C: Complicated questions
C3. [35 marks] A country with a working-age population of 𝑃𝑊 has the following labour
market structure: 𝐿𝐹 – labour force, 𝐸 – the number of employed people, 𝑈 – the number of
unemployed people, 𝑁𝐿𝐹 – the number of inactive people.
In each period a share 𝑈 of inactive people joins the pool of unemployed while a share 𝐸 of
them is hired. Over the same period a share 𝐸 employed people leaves the labour force while
a share 𝑈 of unemployed becomes discouraged and stops actively searching for job. In turn,
the hiring rate ℎ shows the share of unemployed people that are hired in each period while
the rate 𝑗 of job loss shows the share of those with work who become unemployed in each
period.
(a) [25 marks] Using the intensities of the labour market flows derive the formula for the
equilibrium (steady state) rate of unemployment. HINT: consider a system of simultaneous
equations NOT a single steady state condition.
(b) [10 marks] Analyse the determinants of the equilibrium unemployment derived in (a)
algebraically and formulate the results in words.
C4. [45 marks] Suppose the labour force is
𝐿𝐹 = 𝑎 + 𝑏𝑤
Job acceptance curve is given by
𝐴𝐽 = (𝑏 + 𝑐)𝑤
and production function is
𝐹(𝐾, 𝐿) = 2√𝐾𝐿
where 𝑤 – real wage rate, 𝑎 > 0.
(a) [7 marks] Derive the LD curve algebraically and explain the shape of the curve intuitively
(b) [18 marks] Define the necessary parameter conditions for LF and AJ curves and explain
intuitively
(c) [20 marks] Show the effect of an earthquake, which destroys part of the capital stock
graphically. Provide an intuitive explanation of adjustment to the new labour market
equilibrium.
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