Please show your work in detail. No shortcuts Changes in economic policies will
ID: 1205236 • Letter: P
Question
Please show your work in detail. No shortcuts
Changes in economic policies will frequently have an impact on the unemployment rate. Explain whether each of the policy changes described is likely to: (1) affect frictional or structural unemployment and (2) increase or decrease the measured unemployment rate.
A) The government reduces the number of weeks of unemployment insurance that unemployed workers can receive.
Answer:
B) The government raises the minimum wage.
Answer
A) The government reduces the number of weeks of unemployment insurance that unemployed workers can receive.
Answer:
B) The government raises the minimum wage.
Answer
Explanation / Answer
A) Frictional unemployment is likely to be reduced as unemployed workers take fewer weeks to search for new jobs because of reduced benefits. This process is likely to reduce the measured unemployment rate.
B) Structural unemployment will probably increase for those workers with marginal product valued below the higher minimum wage. This policy change is likely to increase the measured unemployment rate.