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Sppose that the matching function is given by m emq a

(a) Suppose that the matching function is given by: M = em(Q, A) = eQ^(0.7)A^(0.3) Express pc and pf as functions of e and labor market tightness j.

b) Suppose that z = 1, b = 0.4, e = 0.9 and k = 0.24. Suppose that w = 0.75 Find the unemployment rate in the economy.

(c) Suppose that e falls to 0.8. Suppose that w is unchanged. What happened to the unemployment rate, the labor force participation rate and output?

(d) Suppose that by law the wage is increased (while keeping all the parameters from part (c) unchanged). What is your prediction about the unemployment and participation rate?

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