Question: Suppose the government s goal is to reduce the unemployment rate
Suppose the government's goal is to reduce the unemployment rate. Some legislators propose that the government should give a subsidy s to any firm that hires a worker. Some other legislators argue that it would be more effective to simply pay consumers to stay home rather than searching for work, that is, anyone who chooses not to participate in the labor force should receive a payment q. Which policy is more effective in achieving the government's goal? Explain using the DMP model, with the aid of diagrams.
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