1. Suppose that there is a capital tax cut that reduces the costs to firms of creating firms and therefore of recruiting new workers: k falls. Use the 2-sided search (Diamond/Mortensen/Pissarides) model diagrams from the text to determine the effects on the unemployment rate, the vacancy rate, the labor force, the number of firms, aggregate output, labor market tightness, and the Beveridge Curve

2. Can you think of any current issues that might be affecting capital costs? Can you think of things that might affect match efficiency (e)?