This question examines the Diamond-Mortensen Pissarides model of search and unemployment seen in class. Recall that the two equations determining equilibrium in this model are given by: v(Q)= b + em(1,j) a ( z-b) and em (1/j,1) = k/(1-a)(z-b) Draw and carefully label the two graphs depicting equilibrium in the model. Suppose that there is a technological change that reduces the costs of recruiting for 1. 2. firms. Use the DMP model to determine the effects on: i. Labour market tightness ii. Labour force iii. The unemployment rate iv. The vacancy rate V. The number of firms vi. Aggregate output
This question examines the Diamond-Mortensen Pissarides model of search and unemployment seen in class. Recall that the two equations determining equilibrium in this model are given by: v(Q)= b + em(1,j) a ( z-b) and em (1/j,1) = k/(1-a)(z-b) Draw and carefully label the two graphs depicting equilibrium in the model. Suppose that there is a technological change that reduces the costs of recruiting for 1. 2. firms. Use the DMP model to determine the effects on: i. Labour market tightness ii. Labour force iii. The unemployment rate iv. The vacancy rate V. The number of firms vi. Aggregate output
Chapter1: Making Economics Decisions
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Transcribed Image Text:This question examines the Diamond-Mortensen Pissarides model of search and
unemployment seen in class. Recall that the two equations determining equilibrium in this model
are given by:
v(Q)= b+ em(1, j) a ( z-b)
and em (1/j,1) = k/(1-a)(z-b)
Draw and carefully label the two graphs depicting equilibrium in the model.
Suppose that there is a technological change that reduces the costs of recruiting for
1.
2.
firms. Use the DMP model to determine the effects on:
i. Labour market tightness
ii. Labour force
iii. The unemployment rate
iv. The vacancy rate
v. The number of firms
vi. Aggregate output
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