3. Understanding unemployment rates Phelps was suspicious of the trade-off suggested by the Phillips curve. He thought that sensible, forward-looking people should not change their behavior just because all the prices on all the price tags in the economy increased at 4% per year instead of at 2% per year.
Phelps started his analysis by asking what determines the unemployment rate. One of the key points he recognized was that unemployment is the inevitable consequence of an economy in which some firms go out of business each month and some workers quit their jobs each month. Once a worker is out of a job, the individual will take some time searching for the next one. Picture an economy with 100,000 workers in its labor force. The unemployment rate is simply the number of unemployed workers divided by the number of workers in the labor force. At the beginning of January, the unemployment rate is 4.76%, so 4,760 people in the labor force are unemployed. Suppose that during January, 20% of the workers who were unemployed at the beginning of the month start new jobs. This means that ____ people leave the unemployment rolls in January.
- 349 - 564 - 1,122 - 196
- 1,058