Answer to Question #227738 in Macroeconomics for mandy

Question

use an illustrative diagram to show and explain how the natural rate of unemployment is affected by an increase in unemployment benefits

Answer 1

Natural unemployment is made up of frictional unemployment and structural unemployment. Therefore, changes in frictional unemployment and structural unemployment will change the natural rate of unemployment. When there is an increase in unemployment benefits, the unemployed individuals become reluctant to take the available jobs. This situation increases structural unemployment and results in a rise in the natural rate of unemployment. In the figure below, a rise in structural unemployment is shown by the rightward change in the Long Run Phillips Curve from LRPC1 to LRPC2.