economics question?

Question

Suppose the government raises unemployment insurance payments in an economy where sticky wages and prices are causing actual output to be below potential output.

What are the likely effect on output in the short run? How do these effects differ from those expected from increased government spending on good and services such as television broadcasting, street cleaning and elderly care?

Answer 1

Output will likely fall in the short run, as more individuals will opt to become unemployed rather than work, since the difference between the payments for unemployment and for working have come closer together, a result of the sticky wages. Thus, there is an incentive not to work by some individuals. These differ from those expected from increased spending on goods because the increased spending on goods increases the demand for goods, thus boosting output.

Answer 2

Actual output is always below potential output. Even though sports figures talk about giving it 110% it is not possible to produce more than one can produce.
The demand curve rises and therefore crosses the supply curve at a higher production rate and higher price..
If people on the bottom economically suddenly receive more money the cost of the things that they consume will rise in price and the amount of those goods and services will increase.
Small retail stores in areas receiving additional funds would hire additional people and unemployment would take a dip.
The more I think about this the more I have to say. Time is limited this morning so thank you for a truely thoght provoking question.