Question

Welfare reforms enacted in 1996 put more pressure on welfare recipients to look for work. The new law mandated cutting off benefits after a certain length of time. Which of the following is likely to occur as a result of this provision?

1 the natural rate of unemployment is likely to decrease, but the unemployment rate is likely to increase.
2 the natural rate of unemployment is not affected, but the unemployment rate is likely to fall.
3 the natural rate of unemployment and the unemployment rate are likely to increase.
4 the natural rate of unemployment is not affected, but the unemployment rate is likely to increase.

Answer 1

The provision of cutting off benefits after a certain length of time is likely to increase the unemployment rate, while the natural rate of unemployment remains unaffected.

Step-by-step explanation:

The provision of cutting off benefits after a certain length of time is likely to result in:

The natural rate of unemployment is unaffected, but the unemployment rate is likely to increase. This is because welfare recipients who are unable to find work within the time limit may no longer receive benefits, leading to an increase in the number of people classified as unemployed.

This provision places pressure on welfare recipients to actively search for work to continue receiving benefits, which may also contribute to a decrease in the natural rate of unemployment over time.