Consider the basic, two period, search model we discussed in class. We focus on the decisions of a marker that nds himself unemployed at the beginning of our analysis. At the beginning of period 1, an unemployed worker observes a wage offer of w. The oer is random that is, it depends on many factors outside the control of the worker, luck included . Assume that wages are drawn from a Uniform distribution on the [I], 3H} interval. Assume that mrkers have a career that lasts for two periods, that they get exactly one offer per period with probability equal to 1. If they take the job, they stop the search and cease to obtain job offers. Assume that the chance that he is red [or the rm that he 1:maorks for cease to exist} is zero. Assume that wages do not grow over time, and the rate of time discount is one {that is, dollars have the same value over time). The worker aims to maximise the expected value of his earnings, and the choicm at his disposal to achieve that are only whether to accept or to turn down an offer at any point in time he obtains one. Question 2 Assume now that the government introduces unemployment benefits. Assume unemployment benefits are paid to unemployed workers at every period, and the value of unemployment benefits is set at 10 dollars per period. a) Find the worker's reservation wage in period 2. b) Find the worker's reservation wage in period 1. c) Find the probability that a worker in period one will find a job. Is it higher than the one without the unemployment benefits? d) Find the average wage of workers that decide to take a job in period one. Compare it with the one that would prevail without unemployment benefits. e) Thinking about a period of unemployment as an investment in job search that has opportunity costs (foregone wages) and benefits; what is the change that unemployment benefits introduce in this environment