The most significant real economic cost of high unemployment is:

• A. higher government spending on public goods
• B. lost output and income for the economy
• C. increased inflation rates
• D. lower interest rates

Answer: (B)

Verified step by step guidance

1. Understand the concept of unemployment in microeconomics: Unemployment occurs when people who are willing and able to work cannot find jobs. This leads to underutilization of labor resources.
2. Recognize that the real economic cost of high unemployment is related to the loss of potential production. When workers are unemployed, the economy produces less than its full capacity.
3. Identify that 'lost output and income for the economy' means the economy is not generating as much goods and services as it could if everyone who wanted to work was employed. This is often called the 'output gap.'
4. Compare other options: higher government spending on public goods, increased inflation rates, and lower interest rates are possible effects or policy responses but are not the primary economic cost of unemployment.
5. Conclude that the most significant real economic cost of high unemployment is the reduction in total output and income, which affects overall economic welfare.