Unemployment Rate and Steady State: Look at the evolution of the monthly unemployment rate, , is given by ₊₁ = (1 + s ) where s is an index of labour market rigidities, is the monthly growth rate of new vacancies and is the amount of money as a share of GDP that government spends each month to employ people in the public sector. Assume that s = 0.06, = 0.03, = 0.04 and ₀ = 1.8 +(0.1+) / (+1 ).

(i) Find the steady-state and characterize its dynamic path. How much will the unemployment rate be in 18 months?

(ii) Assume that we are close to a referendum for EU EXIT and that the government tries to find ways to reduce the unemployment rate to 1.03 in 12 months so as the people to vote for STAY. How much has to change government spending, V? Provide detailed derivations and economic interpretation