Question

2. Why do you suppose that many economists perceive a trade-off between short-term stabilization benefits of unemployment compensation and a contribution to a higher unemployment rate in the long run?

Short answer

It is determined that there is a slim possibility that future GDP will be low.

Step-by-step solution

Introduction

The given is the perception of Economists about the trade-off between short term stabilization and a higher unemployment rate

The objective is to explain why the perception is widely spread

Step 1 

The existing Social Security system permits retirees to be compensated out of the pockets of current employees. If every dollar they receive is spent solely on consumption, it contributes to GDP.

However, because that dollar is paid by workers in the form of payroll taxes, the GDP shrinks at the same time. As a result, the net effect on GDP is approaching zero dollars.

Step 2

If the savings rate falls, the economy's potential GDP will fall in the long run. The economy will contract, and real GDP will likely decline. Still, the long-term growth of the economy is influenced by a variety of factors other than the savings rate.

As a result, the possibilities of a low future GDP are slim.