Final answer:
A reduction in unemployment typically leads to a reduction in real wage due to the substitution effect, where leisure becomes comparably cheaper, leading to more leisure taken and less labor supplied.
Step-by-step explanation:
Based on the PS (labor supply) behavior, a reduction in unemployment, denoted as U, would typically result in a reduction in real wage. In economic terms, the labor supply curve reflects how workers' quantity of labor supplied responds to changes in real wages.
The substitution effect means that as the real wage decreases, leisure becomes relatively cheaper, leading individuals to 'buy' more leisure and supply less labor. This is because they have to give up less consumption goods for each hour of leisure. Alternatively, the income effect suggests that a higher real wage makes an individual feel richer, potentially increasing the consumption of leisure and decreasing the quantity of labor supplied.
However, it's the substitution effect that typically dominates in the labor supply decision when it comes to a decrease in real wages. Therefore, the effect of a decrease in U would likely be a reduction in real wage, reflecting choice B in the provided options.