Question

Suppose the government passes a law that reduces unemployment benefits in a way that causes unemployed workers to seek out new jobs more quickly. The policy will cause the natural rate of unemployment to

Answer 1

Options:

a. Fall

b. Shift the long-run aggregate supply curve to the right

Answer:

b. Shift the long-run aggregate supply curve to the right

Step-by-step explanation:

Indeed, in the long run the aggregate supply or the number of available unemployed workers in the economy would increase, due to an increase in the number of those looking for jobs, since they stand to get reduced unemployment benefits.

This change would be clearly visible if plotted on a labor supply graph. In a sense, the unemployed no longer want to remain unemployed because of reduced unemployment benefits.