Suppose that all social programs simultaneously become more generous. In particular, suppose that there is an increase in UI benefits, and also an increase in welfare benefits, which are represented in the two-sided search model as payments to everyone who is not in the labor force. What will be the effects on the unemployment rate, the vacancy rate, the labour force, the number of active firms, the aggregate output, and the labour market tightness? Draw the two-sided search model diagrams and explain the results and economics intuitions. Imagine you need to explain the mechanisms to your friends who do not seem to have learned the two-sided search model, so you may need to start with introducing key economic concepts very clearly. (Hints: for simplicity, assume the case when there is a uniform payment p to each person not in the labour force, and an increase by p in the employment insurance benefit.)
Suppose that all social programs simultaneously become more generous. In particular, suppose that there is an increase in UI benefits, and also an increase in welfare benefits, which are represented in the two-sided search model as payments to everyone who is not in the labor force. What will be the effects on the
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