MACROECEONMICS please help?

Question

Suppose that the government reduces the time during which an unemployed worker can receive benefits. Explain how this action by the government will affect the natural rate of unemployment.

Answer 1

Favorite Answer

The un-employed worker still needs money to purchase essential goods. Ie - food, clothing etc.

If the government cuts down on the time it will lead to the unemployed finding jobs quicker.(assuming that there are jobs to get)

Answer 2

u=µYd unemployement related to net income, after taxes

u`=µ`Yd`

Yd=Y-tY=(1-t)Y

Yd`=(1-t)Y`

Yd-Yd`=(1-t)(Y-Y`)

Plugging in the first two equations considering µ=µ`

(u/µ)-(u`/µ`)=(1-t)(Y-Y`)

u-u`=µ(1-t)(Y-Y`) change in the natural rate of unemployment