Question

According to the bathtub model of unemployment, which of the following statements is true if a law permanently increases only the job finding rate? A The natural rate of unemployment will rise. B The natural rate of unemployment will fall. C The unemployment rate will fall, but the natural rate of unemployment will be unchanged. D The unemployment rate will rise, but the natural rate of unemployment will be unchanged.

Answer 1

Answer: Option (B)

Explanation:

Bathtub model equilibrium is referred to as or known as the steady-state equilibrium. The steady-state equilibrium is known as the long-run phenomenon or situation, which thus implies that the equilibrium of unemployment model is the characteristics of natural rate instead of actual rate of the unemployment in a particular time period.