Free-Response Question

1. Question

   Assume the country of Technologia invests in an online system that efficiently matches job-seekers with employers and significantly reduces the time required for job searches.

   
   

   
   

   1. Which type of unemployment will Technologia’s investment affect?

      
      
   
   

   2. Will unemployment increase or decrease?

      
      
   
   

   3. Given the change in unemployment from part b. what will happen to the natural rate of unemployment in Technologia? Explain.

      
      
   
   

   4. Given your answer to part b. what will happen to real GDP in Technologia? Explain. (6 points)

      
      
   
   

   Rubric for FRQ (6 points)

   1 point: Frictional unemployment

   1 point: Unemployment will decrease.

   1 point: The natural rate of unemployment will decrease.

   1 point: Because it is made up of frictional and structural unemployment, and because frictional unemployment has decreased, the natural state of unemployment will decrease.

   1 point: Real GDP in Technologia will increase.

   1 point: Because frictional unemployment will decrease, and more people will be working, real GDP will increase; there is an inverse relationship between unemployment and real GDP.