3. Consider a fall in workers' productivity in the equilibrium search model of unemployment. This shifts the job-creation curve downwards. Use diagrams to find the effects on labour-market tightness and unemployment. How does the size of these effects depend on the bargaining power of workers? 4. Central banks have standing facilities such as the 'discount window that provide

3. In the equilibrium search model of unemployment, a fall in workers' productivity shifts the job-creation curve downwards. This results in a decrease in labor-market tightness and an increase in unemployment. The size of these effects depends on the bargaining power of workers.<br /><br />Diagram:<br />[Diagram showing the initial equilibrium at point A with job-creation curve J1 and unemployment U1. After the fall in productivity, the job-creation curve shifts to J2, resulting in a new equilibrium at point B with lower labor-market tightness and higher unemployment U2.]<br /><br />Explanation:<br />When workers' productivity falls, the job-creation curve shifts downwards. This is because firms are willing to create fewer jobs at each level of unemployment due to the decreased productivity of workers. As a result, the labor-market tightness decreases, leading to an increase in unemployment.<br /><br />The size of these effects depends on the bargaining power of workers. If workers have more bargaining power, they can negotiate for higher wages, which may offset the decrease in productivity and mitigate the shift in the job-creation curve. This would result in a smaller decrease in labor-market tightness and a smaller increase in unemployment. On the other hand, if workers have less bargaining power, they may not be able to negotiate for higher wages, resulting in a larger shift in the job-creation curve and a larger increase in unemployment.<br /><br />4. Central banks have standing facilities such as the 'discount window' that provide liquidity to financial institutions. These facilities allow central banks to lend money to banks in need of liquidity, usually at a low interest rate. This helps to ensure that banks have enough reserves to meet their short-term obligations and prevents liquidity crises.<br /><br />The use of standing facilities like the discount window is one of the tools that central banks use to maintain financial stability and control the money supply. By providing liquidity to banks, central banks can help to prevent bank runs and maintain confidence in the banking system. Additionally, by setting the interest rate at which banks can borrow from the central bank, central banks can influence the overall level of interest rates in the economy.<br /><br />Standing facilities are typically used during times of financial stress or crisis when there is a risk of liquidity shortages in the banking system. By providing a source of liquidity, central banks can help to stabilize the financial system and prevent a cascade of defaults and bank failures.