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Please answer the question below. Thank you very much. 3. a. b. c. d. e. Quantifying the effect of unemployment benefits on unemployment. Consider a
Please answer the question below. Thank you very much.
3. a. b. c. d. e. Quantifying the effect of unemployment benefits on unemployment. Consider a version of the labor market model of Pissarides (1985) in which the matching function M (u, t') is uv/(u -F t') and the discount factor [3 is 1. Derive an expression for the worker's job-finding probability, p(0), and for the firm's job-filling probability, (1(0). Express the equilibrium market tightness 0 in terms of the parameters of the model, k, and T). Express the equilibrium unemployment u in terms of the parameters of the model. Let y = 1, b = 0.75, = 0.025, T) 0.5 and k = 0.5. Compute the equilibrium market tightness 0 and the equilibrium unemployment u. If the unemployment benefit decreases from b 0.75 to 0.5, what happens to the equilibrium market tightness 0 and to the equilibrium unemployment u? Explain your findings.
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