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Kindly solve this Assume that an unemployed worker holds a current job offer in hand that pays the wage w'. The worker may accept or
Kindly solve this
Assume that an unemployed worker holds a current job offer in hand that pays the wage w'. The worker may accept or reject this offer. If the worker rejects the offer, then a subsistence wage w" is received in the current period and then the worker draws a new wage offer in the next period. Denote this new offer as w". This offer is drawn from a distribution of wages given by w" ~U[wL, w#].' The worker must accept w and will stay in this job each period with probability 1. If the worker accepts the offer, then w' is received each period but a job separation occurs with probability a E (0,1). If a job separation occurs, then a subsistence wage w is received that period and then a new offer is drawn from the distribution w" -U[WL, WH]. The worker must accept w" and will stay in this job each period with probability 1. The worker discounts future income according to the discount factor B. (a) Under what conditions will the worker accept the current job offer w'? Explain the intuition of your result. (b) How does your answer to part (a) depend on B? (c) How does your answer to part (a) depend on a? (d) Is there cyclical unemployment in this model? What is the role of fiscal and/or monetary policy to reduce unemployment? Explain your answersStep by Step Solution
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