This question examines the DMP model of search and unemployment seen in class. Recall that the...

 

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This question examines the DMP model of search and unemployment seen in class. Recall that the two equations determining equilibrium in this model are given by: v(Q)=b+ e[m(1,j)]a[z-b], ¹(1, ²) = em (1, k (1-a)(z-b) 1. Explain what decisions firms in the DMP model make, and how they make them.([5 pts]) 2. Draw and carefully label the two graphs depicting equilibrium in the model. ([2.5 pts]) 3. How will a decrease in the benefit b affect the equilibrium market tightness j, the unemploy- ment rate, the vacancy rate and the aggregate output? Explain intuitively. ([2.5 pts]) 4. How will a decrease in the productivity z affect the equilibrium market tightness j, the unemployment rate, the vacancy rate and the aggregate output? Explain intuitively. ([2.5 pts]) 5. How will an increase in the cost of recruting k affect the equilibrium market tightness j, the unemployment rate, the vacancy rate and the aggregate output? Explain intuitively. ([2.5 pts]) This question examines the DMP model of search and unemployment seen in class. Recall that the two equations determining equilibrium in this model are given by: v(Q)=b+ e[m(1,j)]a[z-b], ¹(1, ²) = em (1, k (1-a)(z-b) 1. Explain what decisions firms in the DMP model make, and how they make them.([5 pts]) 2. Draw and carefully label the two graphs depicting equilibrium in the model. ([2.5 pts]) 3. How will a decrease in the benefit b affect the equilibrium market tightness j, the unemploy- ment rate, the vacancy rate and the aggregate output? Explain intuitively. ([2.5 pts]) 4. How will a decrease in the productivity z affect the equilibrium market tightness j, the unemployment rate, the vacancy rate and the aggregate output? Explain intuitively. ([2.5 pts]) 5. How will an increase in the cost of recruting k affect the equilibrium market tightness j, the unemployment rate, the vacancy rate and the aggregate output? Explain intuitively. ([2.5 pts])

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1 F irms in the D MP model make decisions about how many workers to hire and how many vacancies to p... View the full answer