Which of the following situations is likely to increase the natural rate of unemployment?
A)the entrance of many new people into the labor force
B)a decrease in unemployment compensation benefits
C)a decrease in job search time due to information advances like the Internet
D)the elimination of the minimum wage

Question

Quizplus · Accepted Answer

When many new people enter the labor force, the competition for jobs increases, and hence the natural rate of unemployment increases. This is because there are more people seeking employment, but there might not be enough employment opportunities available for everyone.

Answer: B 
 Unemployment compensation benefits act as a safety net for individuals who have lost their jobs, and hence the decrease in such benefits will lead to a decrease in the incentive to remain unemployed. As a result, workers are likely to accept lower-paying jobs, which might not be a good match for their skills, and hence the natural rate of unemployment will increase.

Answer: D 
 Eliminating the minimum wage might lead to employers being able to offer lower wages to workers, and hence some workers might not be willing to accept such jobs. This is particularly true for workers who believe that the wages being offered are not commensurate with their skills, experience, or qualifications. As a result, some workers might prefer to remain unemployed, and the natural rate of unemployment will increase.

Option C is incorrect because a decrease in job search time due to information advances like the Internet is likely to decrease, rather than increase, the natural rate of unemployment. This is because job seekers can find information about job openings more easily and hence increase their chances of finding suitable employment.

Which of the Following Situations Is Likely to Increase the Natural