Which of the following would reduce the natural rate of unemployment?

A) Both an increase in the rate of money growth and increased unemployment compensation
B) An increase in the rate of money growth but not increased unemployment compensation
C) An increase in unemployment compensation but not an increase in the rate of money growth
D) Neither an increase in unemployment compensation nor an increase in the rate of money growth

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Azulcrema Aguila · Accepted Answer

Final Answer : D, Explanation :  The natural rate of unemployment is determined by factors such as the structure and dynamics of the labor market, not by monetary policy (like the rate of money growth) or unemployment compensation levels. Increasing the rate of money growth can affect inflation but not the natural rate of unemployment. Similarly, increasing unemployment compensation can make unemployment less burdensome for individuals but does not reduce the natural rate of unemployment; it might even increase it by reducing the incentive to quickly find a new job.

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