Answered step by step
Verified Expert Solution
Link Copied!

Question

00
1 Approved Answer

Hello, could you please help with the below questions? Will give thumbs up to anyone who answers. Suppose the coronavirus pandemic would have led to

Hello, could you please help with the below questions? Will give thumbs up to anyone who answers.

image text in transcribed
Suppose the coronavirus pandemic would have led to a wave of job destruction in the absence of gov- ernment policies such as the furlough scheme, which provided public funds for firms to retain workers and pay their wages. Consider a furlough scheme that succeeds in keeping the unemployment rate at its initial steady-state value (". One benefit of the policy is that it avoids the costs and delays in forming matches again between workers and firms after the pandemic. Consider a time when the pandemic ends, and all parameters return to their pre-pandemic values. In the absence of the furlough scheme, the unemployment rate U is now above U*. (d) Explain why the search model predicts that wages w, market tightness 0, and the job-finding rate f = m/u immediately return to their pre-pandemic values w*, 0", and f*. (e) Explain why ((y - b)u + xu + cyv) - ((y - b)u* + xu* + cyv*), where v* = 0'*, is the loss to the economy if U > U" in a period of time. Show the loss is equal to (y - 2 + cy#")(u - u"). (f) Show that the law of motion for U, implies Up - U = (1 -s - ()(u, - u"). Denote the end of the pandemic as time period 0, where Up > ( in the absence of the furlough scheme. In what follows, you may use that the equation in part (f) implies: (up - 1" ) + (un - 1") + (u2 - 1') + ...= 40 - u s+f (g) Using your answer to part (e) and the equation above, add up all the losses to the economy of starting from Up > U' in period 0. Divide your answer by the economy's steady-state annual GDP 12(1 - u")y to obtain an expression in Up - u", z/y, c. 0", and f. (h) Assume Z/y = 1/4 and c = 1/2, and the steady-state unemployment rate is 5% (U* = 0.05). Suppose in the absence of furlough, the unemployment rate would have risen to 35% (Up = 0.35). What is the model-implied benefit of the furlough policy (as % of GDP)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Elements Of Chemical Reaction Engineering

Authors: H. Fogler

6th Edition

9780135486221

Students also viewed these Economics questions