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PART B: Short Questions Short Question 1: (30 points) A} Consider the bathtub model. Assumeia monthly job separation rate equal to s = 2.1%, and a monthly Job nding rate equal to f = GU96. Assume that the labor force is given by L = 200 million. i Derive the steady-state unemployment rate. How many people are unemployed in the steady-state? How many people lose their jobs every month? How many people nd a job every month? (10 points) ii Lets assume the actual unemployment rate is determined by the bath-tub model stud- ied in the textbook. Equations 7.2 and 7.3 in the textbook are as follows: Eg+Ug=Ix Ut+1 Ur = gEt fUt where E; are the number of employed people, U: are the number of unemployed people. 5, f and L are given in the question on last page. Horn the second equation, we know that the number of unemployed people at time t + 1 is given by Ut+1 = U; + Et fUt (1) Let unemployment rate in February 2021 be 7.5%. Using equation (1) and a calcula- tor, show the evolution of the unemployment rate over time. On the xaxis, plot dates ([12/2U21T (lii'r/QtlJ U4/2U21T 05/2021] and so on...). On the y-ax1s, plot the unemploy- ment rate corresponding at each time. Your graph will start at a y-intercept of 7.5%. That isj U0. = 0.075. How Ion g before the. unemployment. rate reaches 3.5%? (6 points) iii If job-separation rate 3 = 2.5%, what is the steady state unemployment rate. Assume job nding rate is same as given above. (4 points) B) Hyperinations are periods of rapidly increasing ination caused by a sharp increase in money supply growth. Why are hyperinations ultimately self- defeating from the standpoint of the government. (5 points) C) Briey provide two reasons why higher levels of ination might be costly for an economy. (5 points)