Suppose the economy was initially in its steady state. At t = 1, a recession caused the matching efficiency parameter A to decrease to A = 0.3 for 15 months. Starting from the steady state, use the other parameter values as in Table 1 and a spreadsheet program to calculate and plot the time-paths of the market tightness, the unemployment rate and the vacancy rate for 15 months (t = 0, 1, ..., 15) after the economy was hit by the recession. Describe how the market tightness, the unemployment rate and the vacancy rate respond to the decrease in A. Has the economy converged to a new steady state? Explain your findings.

A model of labor market. Some economists argue that the Beveridge curve in the US. has shifted out after the Global Financial Crisis (GFC) because the labor market in the US. has become less efcient. Your task is to understand how the US. labor market responds to the recession caused by the CFO. Suppose each period lasts a month. The parameter values are given in Table 1. s 0.04 A 0.50 a 0.50 c 1 J 3 Table 1: Model of labor market , parameter Values