Question

Describe what would happen if we raised the maximum benefit level for unemployment insurance to the savings rate of high income workers. How big are the consumption-smoothing benefits of this policy change likely to be? Are there other potential benefits of raising this maximum benefit level?

Answer 1

Ans.

When we increase the maximum benefit level for unemployment insurance to the savings rate of high income workers, this could have negative impact on the overall unemployment rate.  
Wile unemployment benefits are good in the short run to ensure that people who are unemployed have expenses for basic food and shelter and they can focus more on looking for employment , very high benefits may discourage them for looking for employment for very long period of time. Also people who are employed may be demotivated and discouraged for employment.
This may maintain the consumption level of the economy but will not help the economy to grow. Also to support the high level of unemployment benefits government may have to raise the taxes and this may cause high layoffs and unemployment elsewhere in the economy. Overall , this may be good for very short time to trigger the consumption and economy but very prolonged sustainability will have adverse impacts on the economy.