Macroeconomics Essay-Unemployment
3) Compare and contrast alternative views on the nature and possible causes of unemployment and evaluate the effectiveness of demand and supply management policies to combat it
This essay will compare and contrast alternative views on the nature and possible causes of unemployment. It will then go on to evaluate the effectiveness of demand and supply management policies that try and combat unemployment. I will be discussing unemployment in two parts- short run and long run and evaluating the effectiveness of demand and supply management policies that combat unemployment for each.
First of all, ‘the unemployment rate measures the fraction of the workforce that is out of work and looking for a job or expecting to recall from a layoff’. Even though unemployment is always being measured, it is believed that official unemployment differs from real unemployment. Official unemployment is presented by the people that are actively looking for a job but cannot find one. However, some people might have given up looking for a job as they have tried looking for one for so long, or some may just think they will not get a job either way so they do not look for it. Even though this is the case, we still look at what causes unemployment overall and how it can be combatted.
In the short run, society faces a tradeoff between unemployment and inflation. This is presented by the Phillips curve. The higher the rate of unemployment, the lower the rate of wage inflation. The curve shows that the rate of wage inflation decreases wi th the unemployment rate If monetary and fiscal policy makers increase aggregate demand and move the economy up along the short-run aggregate-supply curve, they can increase output and lower unemployment for a short period of time, but at the price of a promptly growing price level. If policymakers contract aggregate demand and move the economy down the short-run aggregate-supply curve, they can subordinate inflation, but only at the cost of momentarily
This essay will compare and contrast alternative views on the nature and possible causes of unemployment. It will then go on to evaluate the effectiveness of demand and supply management policies that try and combat unemployment. I will be discussing unemployment in two parts- short run and long run and evaluating the effectiveness of demand and supply management policies that combat unemployment for each.
First of all, ‘the unemployment rate measures the fraction of the workforce that is out of work and looking for a job or expecting to recall from a layoff’. Even though unemployment is always being measured, it is believed that official unemployment differs from real unemployment. Official unemployment is presented by the people that are actively looking for a job but cannot find one. However, some people might have given up looking for a job as they have tried looking for one for so long, or some may just think they will not get a job either way so they do not look for it. Even though this is the case, we still look at what causes unemployment overall and how it can be combatted.
In the short run, society faces a tradeoff between unemployment and inflation. This is presented by the Phillips curve. The higher the rate of unemployment, the lower the rate of wage inflation. The curve shows that the rate of wage inflation decreases wi th the unemployment rate If monetary and fiscal policy makers increase aggregate demand and move the economy up along the short-run aggregate-supply curve, they can increase output and lower unemployment for a short period of time, but at the price of a promptly growing price level. If policymakers contract aggregate demand and move the economy down the short-run aggregate-supply curve, they can subordinate inflation, but only at the cost of momentarily
Bibliography: Figure 1: -------------------------------------------- [ 1 ]. Book [ 2 ]. Book [ 3 ]. book [ 4 ]. Page 786 of http://books.google.co.uk/books?id=nZE_wPg4Wi0C&pg=PA793&dq=short+run+unemployment&hl=en&sa=X&ei=Dvq8UJHtHYaWhQe9q4GIBA&ved=0CDgQ6AEwAw#v=onepage&q=short%20run%20unemployment&f=false [ 5 ]. See figure 1 [ 6 ]. Page 778, available at http://books.google.co.uk/books?id=nZE_wPg4Wi0C&pg=PA793&dq=short+run+unemployment&hl=en&sa=X&ei=Dvq8UJHtHYaWhQe9q4GIBA&ved=0CDgQ6AEwAw#v=onepage&q=short%20run%20unemployment&f=false