During the recession of 2008-2009, the length of time qualified workers were permitted to draw unemployment benefits was increased from 26 to up to 99 weeks. Economic theory indicates that this extension would
A) reduce the opportunity cost of job search and lead to longer spells of unemployment.
B) increase the opportunity cost of job search and lead to shorter spells of unemployment.
C) reduce the long-term rate of unemployment.
D) increase the current supply of labor and make it easier for employers to hire workers.

Question

During  the recession of 2008-2009, the length of time qualified workers were permitted to draw unemployment benefits was increased from 26 to up to 99 weeks. Economic theory indicates that this extension would
A) reduce the opportunity cost of job search and lead to longer spells of unemployment.
B) increase the opportunity cost of job search and lead to shorter spells of unemployment.
C) reduce the long-term rate of unemployment.
D) increase the current supply of labor and make it easier for employers to hire workers.

Quizplus · Accepted Answer

Economic theory suggests that increasing the length of time for which workers can draw unemployment benefits would reduce their incentive to search for a new job and therefore lead to longer spells of unemployment. This is because the opportunity cost of job search (i.e. the foregone income from not working) is lower when workers can receive benefits for a longer period.

During the Recession of 2008-2009, the Length of Time Qualified Workers