Question

which of following can be considered as a direct majo cost of unemployment

government tax revenues rise by 30%

inequality in income refuce by 20%

government expenditure fall by 40%

government tax revenues fall by 30%

Answer 1

When unemployment rises, many people lose their jobs and daily incomes. This reduces their consumption levels as well.

Government tax revenue will not rise. People are losing income due to unempoyment. Thus they are consuming less as well. Also recall from okun's law as unemployment rises, gdp fall. Government recieve taxes through income tax, sales tax and other consumption and output related taxes. As income and consumption is less due to unemployment, tax revenue should decrease. so first option cannot be correct.

Unemployment will makes more people lose income and drive them towards poverty. This will increase poverty and income inequality and not reduce it. So this is also incorrect.

This is highly unlikely. The reasons are that when unemployent is high, economy is in slump, the government increase purchases to boost economy. Even if it does not do so, it still has rising expenditures in terms of increasing unemployment insurances, increased cost of welfare programs etc. Thus incorrect option.

This option is correct. As people get unemployed and loose their incomes, they are no more able to pay their direct taxes. A loss in income decreases other expenses of the unemployed and hence they pay less of the indirect taxes as well. So tax revenues would fall for government due to unemployment and is a major cost of unemployment. So government tax revenues fall by 30% can be considered as a direct major cost of unemployment