1. What type of unemployment is best studied within the long-run framework? What type is best studied under the short-run framework? Explain why. Please see attached for rest of questions.
1. What type of unemployment is best studied within the long-run framework? What type is best studied under the short-run framework? Explain why.
RESPONSE: Unemployment results from the inability of a worker who is searching for employment to find an employer willing to hire her at the market wage. Unemployment comes in three types: frictional, structural, and cyclical. Frictional unemployment occurs when worker searches for a new job or are between jobs. It is transitional. Recent college graduates are a good example of this type of employment. Cyclical unemployment occurs when an economic downturn occurs and firms must lay off their workers. It is the additional unemployment (recall, there is already frictional unemployment) that occurs during a business cycle. Like frictional unemployment, it is transitional. Structural unemployment occurs when the economy has hired all the workers it can, given makeup of the economy. For example, if a person had skills only for fixing carriages and the people used automobiles, then they would be structurally employed. Their skills have become outdated relative to the structure of the economy.
2. You have been hired as a research assistant and are given the following data.
Net foreign factor income 3
Government purchases 43
Gross investment ...
The solution discusses what type of unemployment is best studied within the long-run framework.