Question

According to economists, the biggest “cost” of unemployment is

          a.       increased “welfare” expenditures.                     c.       the value of foregone output.

          b.       lost tax revenue.                                            d.       none of these.

Answer 1

The correct answer is option C. Value of foregone output.

Explanation:

Option C is the most apt answer because biggest reason in terms of cost associated with unemployment is the value of forgegone output. All the other options are the effects of unemployment i.e. increased welfare expenditure and lost tax revenue.

Due to fall in the output, the unemployment increases due to which expenditure to increase welfare of unemployed people and cutting down tax revenues are the steps to be taken by the government. But, the foremost reason due to which unemployment cost much to the government amd thus, economy is fall in the value of output. Falling output increases unemployment and thus, tax revenues fall and welfare expenses rises. Thus, Option C i.e. value of the foregone output which could have lead to lower unemployment is the root cost associated with unemployment.