This question examines theDMP modelof search and unemployment seen in class. Recall that the two equations determining equilibrium in this model are given by:

(Q) =b+e[m(1, j)]a[zb],

em(????1,1/j)????=k/(1a)(zb)

1. Draw and carefully label the two graphs depicting equilibrium in the model.

1. How will an increase in the benefitbaffect the equilibrium market tightnessj, the unem- ployment rate, the vacancy rate and the aggregate output? Explain intuitively.
2. How will an increase in the productivityzaffect the equilibrium market tightnessj, the unemployment rate, the vacancy rate and the aggregate output? Explain intuitively.
3. How will an decrease in the cost of recrutingkaffect the equilibrium market tightnessj, the unemployment rate, the vacancy rate and the aggregate output? Explain intuitively.