Equation of the Long Run Jobs Curve Derivation of a simple (i.e., linear, throug
ID: 1114599 • Letter: E
Question
Equation of the Long Run Jobs Curve
Derivation of a simple (i.e., linear, through the origin) equation for the Long Run Jobs Curve.
In Q3 2015, the nominal GDP was $18.0 trillion. In October 2015, employment (household survey, seasonallyadjusted) was 149.2 million people. Round this off to 150 million people.
For convenience, measure employment in units of millions of people, and measure nominal GDP in units of $100 billion. Thus, E = 150 and Y = 180.
Therefore, the point Y = 180 and E = 150 is on the Long Run JobsCurve. So is the origin. Thus, the equation for theLong Run Jobs Curve is:
E = (150/180) Y or E = (5/6) Y or approximately E = .8Y. This is the equation to use in the following problem set.
Parameter Values
fr = .95
LF = 160 (measured in units of millions of people)
Y Value
Let Y = 170 (measured in units of $100 billion, so the nominal GDP is $17 trillion)
Problems
1. What is E?
2. What is U?
3. What is UR?
4. What is Ep?
5. What is the sum [Structural Unemployment +Frictional Unemployment]?
6. What is Cyclical Unemployment?
7. What is URn?
Explanation / Answer
1. E is the number of people employed.
2. U is the unemployed people.
3.UR is the unemployment rate = U/(U+E)
4. Ep is the employed people at the potential level of output(full employment level)
5. Sum of structural unemployment +Frictional unemployment = UR = (160-150=10)/160 = 10/160 = 1/16.
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