V. The number of firms IV. AGGREGATE OUTPUT , thank you!

This question examines the Diamond-Mortensen Pissarides model of search and unemployment seen in class. Recall that the two equations determining equilibrium in this model are given by: V(Q)= b + em(1,j) a ( zb) and em (1/j,1) = k/(la)(zb) 1. Draw and carefully label the two graphs depicting equilibrium in the model. [4 pts] 2. Suppose that there is a technological change that reduces the costs of recruiting for rms. Use the DMP model to determine the effects on: [6 pts] 1. Labour market tightness ii. Labour force iii. The unemployment rate iv. The vacancy rate