Microeconomics: Unemployment Rate and Search Model

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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?

The unemployment rate will increase (A) 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?

H(𝑤 ∗ ) (D) Signup and view all the answers

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

𝑈𝑝𝐻(𝑤 ∗ ) (D) Signup and view all the answers

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

It increases from Vu to Vu (A) Signup and view all the answers

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

It has both direct and indirect effects, leading to an uncertain outcome (C) Signup and view all the answers

What happens to the reservation wage when p2 increases?

It increases from w1* to w2* (D) Signup and view all the answers

What is the implication of the model for government policy?

The government's policy may be counterproductive if its goal is to decrease the unemployment rate (B) Signup and view all the answers

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

It may either increase or decrease the unemployment rate, depending on the indirect effect (C) Signup and view all the answers

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

The flow of workers from unemployment to employment (B) Signup and view all the answers

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

The wage w, productivity z, and the cost of posting a vacancy k (A) Signup and view all the answers

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

z units of output (A) Signup and view all the answers

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

The relative bargaining power of the firm and the worker (D) Signup and view all the answers

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

Total factor productivity (D) 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?

Total surplus (B) Signup and view all the answers

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

John Nash (C) Signup and view all the answers

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

$z - b$ (D) Signup and view all the answers

What is the bargaining power of the worker represented by?

$a$ (D) Signup and view all the answers

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

$a(z - b)$ (C) Signup and view all the answers

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

$z - w$ (B) 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?

$a = 1/2$ (C) Signup and view all the answers

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

$w = az + (1 - a)b$ (A) 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?

𝐴/𝑄 (B) 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)?

1 - 𝑒𝑚(1, 𝑗) (D) 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(𝑄) = 𝑏 + 𝑝𝑐(𝑤 - 𝑏) (C) Signup and view all the answers

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

𝑏 + 𝑝𝑐(𝑤 - 𝑏) (B) Signup and view all the answers

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

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

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

The wage offered by firms (D) Signup and view all the answers