Adapt the DMP model to include government activity as follows. Suppose that the government can operate firms, subject to the same constraints as private firms. In particular, the government must incur a cost k to post a vacancy. Supposing that the government operates G firms, then the number of matches in the economy as a whole is M = em(Q, A + G), where A is the number of private firms that choose to post vacancies. Assume that the government pays the same wages as do private sector firms. Determine the effects of G on the unemployment rate, the vacancy rate, the labor force, the number of private firms, the total number of firms (private and government-run), aggregate output, and labor market tightness. Explain your results.
Answer to relevant QuestionsShow that, in the Keynesian DMP model, if the wage is judged to be inefficiently high, so that unemployment is inefficiently high, the government can pay a subsidy to firms that corrects the problem. Explain your results. ...Suppose that the economy is initially in a steady state and that some of the nation’s capital stock is destroyed because of a natural disaster or a war.(a) Determine the long-run effects of this on the quantity of capital ...Suppose that the depreciation rate increases. In the Solow growth model, determine the effects of this on the quantity of capital per worker and on output per worker in the steady state. Explain the economic intuition behind ...Reinterpret the endogenous growth model in this chapter as follows. Suppose that there are two groups of people in a country, the low-skilled workers and the high-skilled workers. The low-skilled workers have less human ...A consumer receives income y in the current period, income y' in the future period, and pays taxes of t and t' in the current and future periods, respectively. The consumer can borrow and lend at the real interest rate r. ...
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