Adapt the two-sided search 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. (Here, G is an exogenous variable, and A is still an endogenous variable.)
Adapt the two-sided search 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
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