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2. Suppose the government's goal is to reduce the unemployment rate. Some legislators propose that the government should give a subsidy s to any firm
2. Suppose the government's goal is to reduce the unemployment rate. Some legislators propose that the government should give a subsidy s to any firm that hires a worker. Some other legislators argue that it would be more effective to simply pay consumers to stay home rather than search for work; that is, anyone who choses not to participate in the labor force should receive a payment q. (a) Use the graphical two-sided search model to determine which policy is more effect tive in achieving the government's goal. Do not worry about how the government finances the subsidies when answering this or subsequent questions. (b) Use the graphical two-sided search model to evaluate the two policies in terms of their impact on aggregate output. (c) Based on your answers in parts (a) and (b), which policy should the government implement? It is okay to respond to this question in a normative way. Just be sure to use your findings to support your answer and highlight any tradeoffs that may exist
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