In the two-sided search model, an increase in matching efficiency, e, could help high unemployment when there is
A)demographic changes.
B)high labour force participation.
C)a large degree of mismatch.
D)an increase in aggregate economic activity.
E)low labour force participation.

Question

Quizplus · Accepted Answer

In the two-sided search model, an increase in matching efficiency, e, helps in reducing the mismatch between job seekers and job openings. Thus, a large degree of mismatch, as mentioned in option C, can be addressed by an increase in matching efficiency. This can eventually help in reducing the unemployment rate, which is high due to the lack of suitable job openings for job seekers. The other options, such as demographic changes, labour force participation, and aggregate economic activity, may have an impact on the labor market but may not necessarily be directly related to the matching efficiency in the two-sided search model.

In the Two-Sided Search Model, an Increase in Matching Efficiency