# PS8 - ECN 713 Spring 2010 Natalia Kovrijnykh Problem Set 8:...

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ECN 713 Spring 2010 Natalia Kovrijnykh Problem Set 8: Due on Wednesday, May 5, by 2pm in my mailbox (100 points total) 1. [5 points] Consider the matching model we studied in class, but with an arbitrary matching function M ( u; v ) (not necessarily Cobb-Douglas), where M is increasing in both arguments, concave, and homogeneous of degree 1. Let = v=u and q ( v=u ) = M ( u; v ) =v . Recall that in the steady state, s (1 u ) = ( ) u . Show that u is decreasing in and v is increasing in . 2. [10 points] In the matching model we studied in class, verify that a worker prefers to be employed rather than unemployed. 3. [55 points] Consider an economy populated by risk-neutral consumers who maximize their present discounted value of income E t 1 P j =0 ± j y t + j ; where ± = 1 = (1+ r ) 2 (0 ; 1) . Assume that workers produce z at home if they are unemployed, and that they are endowed with one unit of labor. If a worker is employed, he can spend x units of time at the job, and

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## This note was uploaded on 11/19/2010 for the course ECON 210b taught by Professor Natalia during the Spring '10 term at ASU.

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PS8 - ECN 713 Spring 2010 Natalia Kovrijnykh Problem Set 8:...

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