Microeconomics: Unemployment Rate and Search Model
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Questions and Answers

What is the flow of workers from employment to unemployment in a given period?

  • 𝑈𝑝𝐻(𝑤 ∗ )
  • 𝑈(1 − 𝑠)
  • 𝑝(1 − 𝑈)
  • 𝑠(1 − 𝑈) (correct)

    • What is the condition for long-run equilibrium in the search model of unemployment?

  • The unemployment rate is at its natural rate
  • The flow of workers from employment to unemployment is greater than the flow of workers from unemployment to employment
  • The reservation wage is zero
  • The flow of workers from employment to unemployment is equal to the flow of workers from unemployment to employment (correct)

    • What is the purpose of the reservation wage in the search model of unemployment?

  • To determine the acceptable wage for an unemployed worker (correct)
  • To determine the unemployment rate
  • To determine the job offer rate
  • To determine the separation rate

    • What is the effect of an increase in the separation rate, s, on the unemployment rate, U?

    <p>The unemployment rate will increase</p> Signup and view all the answers

    What is the fraction of the unemployed who receive a job offer and are offered a wage greater than their reservation wage?

    <p>H(𝑤 ∗ )</p> Signup and view all the answers

    What is the flow of workers from unemployment to employment in a given period?

    <p>𝑈𝑝𝐻(𝑤 ∗ )</p> Signup and view all the answers

    What happens to the welfare of the unemployed when p2 increases?

    <p>It increases from Vu to Vu</p> Signup and view all the answers

    What is the effect of an increase in p on the flow of workers from unemployment to employment?

    <p>It has both direct and indirect effects, leading to an uncertain outcome</p> Signup and view all the answers

    What happens to the reservation wage when p2 increases?

    <p>It increases from w1* to w2*</p> Signup and view all the answers

    What is the implication of the model for government policy?

    <p>The government's policy may be counterproductive if its goal is to decrease the unemployment rate</p> Signup and view all the answers

    What is the effect of an increase in p on the unemployment rate in the long-run equilibrium?

    <p>It may either increase or decrease the unemployment rate, depending on the indirect effect</p> Signup and view all the answers

    What is the meaning of UpH(w*) in the context of the model?

    <p>The flow of workers from unemployment to employment</p> Signup and view all the answers

    What determines the labour market tightness j, according to equation (13)?

    <p>The wage w, productivity z, and the cost of posting a vacancy k</p> Signup and view all the answers

    What is the total output produced when a firm is matched with a worker?

    <p>z units of output</p> Signup and view all the answers

    What is the primary factor in the Nash bargaining solution that determines the wage agreement?

    <p>The relative bargaining power of the firm and the worker</p> Signup and view all the answers

    What is the alternative concept to average labor productivity in this model?

    <p>Total factor productivity</p> Signup and view all the answers

    What is the term for the collective gain of the firm and the worker from coming to an agreement?

    <p>Total surplus</p> Signup and view all the answers

    Which economist is credited with developing the bargaining theory used in this model?

    <p>John Nash</p> Signup and view all the answers

    What is the total surplus in the two-sided search model of unemployment?

    <p>$z - b$</p> Signup and view all the answers

    What is the bargaining power of the worker represented by?

    <p>$a$</p> Signup and view all the answers

    What is the worker's surplus in terms of the total surplus?

    <p>$a(z - b)$</p> Signup and view all the answers

    What is the firm's surplus in the two-sided search model of unemployment?

    <p>$z - w$</p> Signup and view all the answers

    What is the value of the worker's share of the total surplus if the worker and firm have equal bargaining power?

    <p>$a = 1/2$</p> Signup and view all the answers

    What is the equation that determines the wage in the two-sided search model of unemployment?

    <p>$w = az + (1 - a)b$</p> Signup and view all the answers

    What is the ratio of firms searching for workers relative to consumers searching for work, according to the two-sided search model of unemployment?

    <p>𝐴/𝑄</p> Signup and view all the answers

    What is the probability of being unemployed if a consumer chooses to search for work, according to Equation (10)?

    <p>1 - 𝑒𝑚(1, 𝑗)</p> Signup and view all the answers

    What is the supply curve for the number of consumers choosing to search for work, 𝑄, defined by?

    <p>𝑃(𝑄) = 𝑏 + 𝑝𝑐(𝑤 - 𝑏)</p> Signup and view all the answers

    What is the expected payoff a consumer receives from searching for work, in equilibrium?

    <p>𝑏 + 𝑝𝑐(𝑤 - 𝑏)</p> Signup and view all the answers

    What is the function of the matching function, according to the CRS property?

    <p>𝑒𝑚(1, 𝐴/𝑄)</p> Signup and view all the answers

    What is the variable 𝑤, in the context of the two-sided search model of unemployment?

    <p>The wage offered by firms</p> Signup and view all the answers

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