Higher Unemployment Insurance Benefits: Impact on Unemployment | CFA Level 1 Exam Prep

The Impact of Higher Unemployment Insurance Benefits on Unemployment

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Question

Higher unemployment insurance benefits tend to increase unemployment because they

Answers

A. reduce the opportunity cost of job search and hence decrease the search time.

B. increase the opportunity cost of job search and hence increase the search time.

C. reduce the opportunity cost of job search and hence increase the search time.

D. increase the opportunity cost of job search and hence decrease the search time. C

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Explanations

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A. B. C. D.

Explanation

A change that reduced the job seeker's cost of continued search would lead to more lengthy periods of search. If unemployment benefits increase, it is less costly to continue looking for a preferred job. This reduction in the cost of job search would induce job seekers to expand their search time.

Unemployment would be pushed upward.

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