Question

How do generous unemployment benefits affect the natural rate of unemployment?

a The natural rate of unemployment is independent of unemployment benefits.
b The natural rate of unemployment could increase or decrease depending on what else is happening in the economy.
c They reduce the natural rate of unemployment by helping people who lost their jobs.
d They increase the natural rate of unemployment.

Answer 1

Generous unemployment benefits can affect the natural rate of unemployment by decreasing the incentive for workers to actively seek new jobs.

Step-by-step explanation:

Public policy can have an effect on the natural rate of unemployment. When generous unemployment benefits are provided, it lowers the opportunity cost of being unemployed, which may decrease the incentive for workers to actively seek new jobs. This can potentially increase the natural rate of unemployment.