Answer Happy

Question 5 Consider the neoclassical model of labour supply. You can think of the basic version with loga- rithmic utility, and the standard optimality conditions and budget constraints. A temporary fu- ture increase in the wage rate (e.g., WE+1 and Wt+2 increase while Wt remains constant) A)[ ] will reduce today's labour supply because of the income effect. B)[ ] will increase today's labour supply because of consumption smoothing. C)[ ] will reduce today's labour supply because of the intertemporal substitution effect. D[ ] will increase today's labour supply because of the static substitution effect with consump- tion. E[ ] A and C. F[ ] None of the above. (4 marks] Question 6 Consider the frictional model of an unemployed worker who in each period receives wage offers drawn from a probability distribution. An increase in the level of unemployment benefits A)[ ] raises the reservation wage by reducing the opportunity cost of waiting for better wage offers. B)[ ] reduces the reservation wage by increasing the opportunity cost of waiting for better wage offers. C[ ] raises the reservation wage by reducing the future gain of waiting for better wage offers. D[ reduces the reservation wage by increasing the future gain of waiting for better wage of- fers. E)[ ] A and C. F[ ] None of the above. (4 marks]