Suppose the federal government increases the unemployment benefits financed by higher income taxes. In this case, which of the following is likely to occur?

Question

Quizplus · Accepted Answer

By increasing unemployment benefits, the disposable income of the unemployed will increase. This will lead to a redistribution of income from the employed to the unemployed. As a result, option A is incorrect because an increase in unemployment benefits does not directly lead to an increase in real GDP. Option C is also incorrect as there is no direct correlation between unemployment benefits and the interest rate. Option D is unrelated to the scenario. Similarly, option E is also incorrect as unemployment benefits do not have a direct impact on the income of the rich and poor. Thus, the correct answer is B.

Suppose the Federal Government Increases the Unemployment Benefits Financed by Higher