In the two-sided search model, if aggregate output output increases, vacancies rise, unemployment falls, and the labour force increases, this could be caused by
A)a decrease in matching efficiency.
B)an increase in employment insurance benefits.
C)an increase the cost of posting a vacancy.
D)a decline in aggregate productivity.
E)an increase in matching efficiency.

Question

Quizplus · Accepted Answer

An increase in matching efficiency would make it easier for firms and workers to find each other, leading to a rise in vacancies and a decrease in unemployment. As output increases, firms may also become more productive and better able to invest in technology that enhances matching efficiency. The other options are unlikely to lead to the observed effects. A decrease in matching efficiency (choice A) would reduce the number of vacancies and increase unemployment, while an increase in the cost of posting a vacancy (choice C) would discourage firms from advertising and reduce vacancies. An increase in employment insurance benefits (choice B) might encourage some workers to remain unemployed, but would not necessarily increase the number of job vacancies. Finally, a decline in aggregate productivity (choice D) would lead to lower output and lower employment, the opposite of what is described in the question.

In the Two-Sided Search Model, If Aggregate Output Output Increases