Consider the basic, two period, search model we discussed in class. We focus on the decisions of a worker that nds himself unemployed at the beginning of our analysis. At the beginning of period 1, an unemployed worker observes a wage offer of w. The offer is random that is, it depends on many factors outside the control of the worker, luck included . Assume that wages are drawn from a Uniform distribution on the (0, 140) interval. Assume that workers have a career that lasts for two periods, that they get exactly one offer per period with probability equal to 1. If they take the job, they stop the search and cease to obtain job offers. Assume that the chance that he is red (or the rm that he works for cease to exist) is zero. Assume that wages do not grow over time, and the rate of time discount is one (that is, dollars have the same value over time). The worker aims to maximize the expected value of his earnings, and the choices at his disposal to achieve that are only whether to accept or to turn down an offer at any point in time he obtains one. Question 4 (10 points) Consider the basic Markov chain framework of understanding the employment unemployment dynamics. The adult pop ulation consists of workers in two distinct states: employment and unem ployment. At every year, employed workers have a separation rate of 10%, while unemployed workers have a job nding rate of 85%. Assume that at the end of 2018, the employment rate is 75%. a) Assuming that the job nding rate and the separation rate stay the same, nd the employment rate (e) and the unemployment rate (u) that is predicted to prevail in 2019. b) Find the long run equilibrium rates of employment and unemploy ment