Future Business Leaders of America (FBLA) Personal Finance Practice Test

What is a likely effect of high unemployment on the economy?

1. Increased consumer spending

2. Lower production costs

3. Decreased confidence in the job market

4. Higher wages for the unemployed

The correct answer is: Decreased confidence in the job market

High unemployment typically leads to decreased confidence in the job market. When unemployment rates rise, individuals who are currently unemployed may feel uncertain about their ability to find new jobs. This lack of confidence can stifle job-seeking behavior, lead to reduced spending, and generally create a more pessimistic economic outlook. Additionally, consumers may be hesitant to spend money if they fear losing their job or are dealing with the hardships that come with unemployment. This drop in consumer confidence can further exacerbate economic slowdowns, as less consumer spending means lower overall demand for goods and services. In contrast, increased consumer spending would be unlikely during high unemployment due to the financial strains faced by those out of work. Lower production costs may not be directly linked to unemployment, as companies might still face high operational costs regardless of unemployment rates. While higher wages for the unemployed might seem beneficial, in reality, employers may not have incentive to raise wages if there is a surplus of labor in the market.