QUESTION 49 (5 marks)
An estimated NAIRU falls after improved job matching. Explain how this could change the economy’s capacity to achieve full employment without accelerating inflation. Give one reason why the estimate should be treated cautiously.
Practice marking scheme
Answer
Lower matching frictions may permit lower sustainable unemployment; NAIRU is uncertain and variable.
Working
More efficient matching reduces persistent vacancies alongside unemployment and can reduce the natural unemployment rate. If the estimated NAIRU genuinely falls, the economy may sustain more employment before labour-market pressure accelerates inflation. It is not directly observed and depends on modelling, expectations and other shocks, so a single estimate should not mechanically dictate policy.
Marking criteria
- Links matching efficiency to sustainable employment. [2 marks]
- Explains the inflation constraint. [1 mark]
- Explains estimation uncertainty and a policy implication. [2 marks]
Practice question aligned to the current QCAA syllabus; review the worked solution and marking criteria.
View the QCAA syllabusCompare your working with the guide above.