Question

Suppose the government introduces a benefit of $10,000 to be paid to every adult, regardless of whether or not they seek employment.

Using the employment search model,

A, Carefully explain how this will affect the equilibrium wage rate, the unemployment rate, and GDP.

B, How is this policy different than an increase in unemployment benefits?

Answer 1

when you givr money to everyone the people will feel contented and supply for lbour will decrease as people willing to work decreases. This will have impact on slight decrease of unemployment and GDP will decrease as less people work . Equilibrium wage rate will increase because supply is decreased so wages will increase

B. In unemployment benefits only unemployed people get the welfare fund so this doesnt affect people who alreaddy have jobs so no effect on all of three factors mentioned