ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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In the Mortensen-Pissarides model of unemployment with constant wage (
w By+ (1-3) b), if labor productivity (y) falls then market tightness___________ and
unemployment ________
Falls; increases
Increases; decreases.
O Doesn't change; decreases
Increases; increases
Falls: decreases
According to the vacancy supply condition, firms keep opening vacancies until the
cost of opening a vacant job is
the expected sum of profits from a vacancy.
O equal to
greater than
Onone of the above
less than
greater than. You selected this answer.
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Transcribed Image Text:In the Mortensen-Pissarides model of unemployment with constant wage ( w By+ (1-3) b), if labor productivity (y) falls then market tightness___________ and unemployment ________ Falls; increases Increases; decreases. O Doesn't change; decreases Increases; increases Falls: decreases According to the vacancy supply condition, firms keep opening vacancies until the cost of opening a vacant job is the expected sum of profits from a vacancy. O equal to greater than Onone of the above less than greater than. You selected this answer.
Expert Solution
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Step 1

Mortensen-Pissarides model is defined as a model which states the volatility of unemployment, however, it also overstates the volatility of labor market tightness and the magnitude of the unemployment–vacancy.

Given, 

Labour productivity falls

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