Question 4 25 marks Briefly explain how and why each of the following changes would affect the natural rate of unemployment in an economy (a) A decrease in unemployment benefits (5) (b) An increase in the minimum wage (5) (c) Assume a technological advance leads to lower production costs within an economy Show the effect this will have on national income, unemployment, inflation, and interest rates with the help of an AD AS diagram, assuming completely flexible wage rates

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Question: Question 4 [25 marks] Briefly explain how and why each of the following changes would affect the natural rate of unemployment in an economy: (a)

Question 4 [25 marks]

Briefly explain how and why each of the following changes would affect the natural rate of unemployment in an economy:

(a) A decrease in unemployment benefits; (5)

(b) An increase in the minimum wage; (5)

Show the effect this will have on national income, unemployment, inflation, and interest rates with the help of an AD-AS diagram, assuming completely flexible wage rates.

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