Question 4: (5 marks) Consider the following matching model of the labour market: M = 0.940.5,/0.5 (1) Matching Function S = (1 - u) 0.04 (2) Separation Function S = M (3) Steady State Equilibrium 0* = 1.25 + 0.01y-s- c-r-q. (4) Equilibrium Market Tightness In the above, M stands for the matching function, u unemployment rate, v vacancy rate, S separation function, 0 = v/u is the market tightness, 0' 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 o represents the worker bargaining power. Based on the above information, answer the following questions. a) (2 marks) Derive the Beveridge curve for the above labour market. b) (2 marks) Given the values y = 110, s = 0.04, c = 1.16, r = 0.05, o =0.7, compute the equilibrium values of 0', u", and v*. c) (1 mark) Suppose the government can influence the value of s (using regulations on conditions under which firms can terminate workers), and can influence the value of c (using job creation subsidies). If the government chooses, as its objective, to use these two policy instruments to reduce unemployment without affecting the value of 0", as part of this policy, should the government tighten or relax the regulations on termination conditions