Question 4: (10 points) Consider our frictional model of unemployment, where each individual has an ability level , and where firms offer jobs that correspond to some required level of ability , such that: 1) workers cannot accept a job offer if the job's ability requirement exceeds their own ability; and 2) wages increase with job ability requirements, i.e. () increases as increases. Job offers arrive randomly at some given rate over time. a) What characterizes an individual's job search strategy?

b) Imagine the rate of job offer arrivals slows down. What do you predict will happen to: 1) the average time spent in unemployment? and 2) the average wage coming out of unemployment?

c) Now, assume there has been an increase in unemployment benefits. What do you predict will happen to: 1) the average time spent in unemployment? and 2) the average wage coming out of unemployment?