interest rate.The Fisher effect states that i=r+n.In this case,since the real interest ate rfalls,a 1-percent inerease in inflation increases the nominal interest rate i by less than 1 percent CHAPT E R 6 Unemployment Questions for Review 1.What determines the natural rate of unemployment? 1.The rates of job separation and job finding determine the natural rate of omployment The rate of job senars he higher th e rate of job separation,the higher the natural rate unemployment.The rate of job finding is the fraction of unemployed people who find a job each month.The higher the rate of job finding,the lower the natural rate of unemployment. 2.Describe the rence betw een frictional unem- ployment and structual unemployment. 2.Frictional unemployment is the unemployment caused by the time it takes to match workers and jobs Finding n appr opriate job takes time because the flow of information about job candidates cancies is not instantaneous Because different jobs require differen kil逃 pay different wages unemployed workers may not accept the first job offer they receive.In contrast wait unemployment is the unemployment resulting from wage rigidity and job rationing.These workers are unemployed not because they are actively searching for a job that best suits their skills(as in the case of frictional unemployment), but bec at the prev ailing re al wag th eds the nd If the wage does not adjust to clear the labor market,then these workers mus "wait"for jobs to become available.Wait unemployment thus arises because firms fail to reduce wages despite an excess supply of labor. 3.Give three explanations why the real wage may remain above the level that equilibrates labor supply and labor demand 3.The real wage may remain above the level that equilibrates labor supply and labor demand because of minimum wage laws,the monopoly power of unions,and efficiency wages.Minimum-wage laws cause wage rigidity when they prevent ng to equ m levels.A lth ugh most s are palc imum level,for some workers,especially the unskilled and inexperienced,the minimum wage raises their wage above the equilibrium level It therefore reduces the quantity of their labor that firms demand,and an excess supply of workers-that is,unemployment-results.The monopoly power of interest rate.The Fisher effect states that i=r+π.In this case,since the real interest rate r falls,a 1-percent increase in inflation increases the nominal interest rate i by less than 1 percent. C H A P T E R 6 Unemployment Questions for Review 1.What determines the natural rate of unemployment? 1.The rates of job separation and job finding determine the natural rate of unemployment. The rate of job separation is the fraction of people who lose their job each month. The higher the rate of job separation,the higher the natural rate of unemployment. The rate of job finding is the fraction of unemployed people who find a job each month. The higher the rate of job finding,the lower the natural rate of unemployment. 2.Describe the difference between frictional unem￾ployment and structual unemployment. 2. Frictional unemployment is the unemployment caused by the time it takes to match workers and jobs.Finding an appropriate job takes time because the flow of information about job candidates and job vacancies is not instantaneous. Because different jobs require different skills and pay different wages, unemployed workers may not accept the first job offer they receive. In contrast, wait unemployment is the unemployment resulting from wage rigidity and job rationing. These workers are unemployed not because they are actively searching for a job that best suits their skills (as in the case of frictional unemployment), but because at the prevailing real wage the supply of labor exceeds the demand.If the wage does not adjust to clear the labor market,then these workers must “wait” for jobs to become available. Wait unemployment thus arises because firms fail to reduce wages despite an excess supply of labor. 3.Give three explanations why the real wage may remain above the level that equilibrates labor supply and labor demand. 3. The real wage may remain above the level that equilibrates labor supply and labor demand because of minimum wage laws,the monopoly power of unions,and efficiency wages. Minimum-wage laws cause wage rigidity when they prevent wages from falling to equilibrium levels.Although most workers are paid a wage above the minimum level, for some workers,especially the unskilled and inexperienced,the minimum wage raises their wage above the equilibrium level.It therefore reduces the quantity of their labor that firms demand,and an excess supply of workers—that is,unemployment—results. The monopoly power of