Consider the following matching model of the labour market:

a) Derive the Beveridge curve for the above labour market.

b) Given the values = 110, = 0.04, = 1.16, = 0.05, = 0.7, compute the equilibrium values of , u , and .

c) The government changed labour market regulations, making it more difficult for firms to terminate workers. How would this policy change affect the labour market? Draw diagram to support your answer.

M=0.9u0.5v0.5 (1) Matching Function S=(1u)0.04 (2) Separation Function (3) Steady State Equilibrium =1.25+0.01yscr. (4) Equilibrium Market Tightness In the above, M stands for the matching function, u unemployment rate, v vacancy rate, S separation function, vu is the market tightness, is the equilibrium market tightness, y is output per matched worker, s is the separation rate, c is the cost of the vacancy creation, r is the discount factor and represents the worker bargaining power. Based on the above information, answer the following questions. M=0.9u0.5v0.5 (1) Matching Function S=(1u)0.04 (2) Separation Function (3) Steady State Equilibrium =1.25+0.01yscr. (4) Equilibrium Market Tightness In the above, M stands for the matching function, u unemployment rate, v vacancy rate, S separation function, vu is the market tightness, is the equilibrium market tightness, y is output per matched worker, s is the separation rate, c is the cost of the vacancy creation, r is the discount factor and represents the worker bargaining power. Based on the above information, answer the following questions