The two-sided search model is consistent with which of the following business cycle facts?
A) The unemployment rate is procyclical and the vacancy rate is procyclical.
B) The unemployment rate is countercyclical and the vacancy rate is acyclical.
C) The unemployment rate is countercyclical and the vacancy rate is countercyclical.
D) The unemployment rate is countercyclical and the vacancy rate is procyclical.
E) The unemployment rate is acyclical and the vacancy rate is procyclical.

Question

Quizplus · Accepted Answer

The two-sided search model predicts that the unemployment rate is countercyclical because during recessions, there are fewer job opportunities available and more job seekers, leading to higher unemployment. Conversely, during expansions, there are more job opportunities available and fewer job seekers, leading to lower unemployment. The model also predicts that the vacancy rate is procyclical because firms are more likely to have job openings during expansions when the economy is growing and demand for their goods and services is higher, and less likely to have job openings during recessions when demand is lower. Option D is the only choice that accurately reflects both of these predictions.

The Two-Sided Search Model Is Consistent with Which of the Following