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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 3 Assume that the economy now entered a recession and, as a result, worker's are finding it harder to obtain job offers. Assume that, at every period in which a worker is searching for a job, he only obtains an offer with a probability of .85. Provided that he is lucky enough to get an offer, the wage he obtains is still a random draw from a uniform distribution on the (0,140) interval. a) Find the worker's reservation wage in period 1. b) Find the expected value of the wage of workers that find jobs in period one. c) Find the chance that an unemployed worker finds a job in period 1. It is smaller than the chances that he would find a job in normal times? By how much? Why