Macroeconomics Essay-Unemployment - 1131 Words

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’.†¦show more content†¦(2011).--gt; http://www.studymode.com/essays/Unemployment-1144925.html# * http://books.google.co.uk/books?id=PYO7Zz5tSJsCamp;pg=PA9amp;lpg=PP1amp;dq=causes+of+unemployment- from page 9 explains unempl: 3 ingredients-labour demand, labour supply and wage determination. * Letting Wt be the wage this period, Wt+1 the wage next period, the rate of inflation gw= Wt+1-W1/Wt * With u* representing the natural rate of unemployment, we can write the simple Phillips curve as gw=-e(u-u*) where e measures the responsiveness of wages to unemployment. This equation states that wages are falling when the unemployment rate exceeds the natural rate, that is when ugt;u*, and rising when unemployment is below the natural rate. The difference between unemployment and the natural rate, u-u*is called the unem ployment gap. * Automatic stabilizers- changes in fiscal policy that stimulate aggregate demand when the economy goes into a recession without policy-makers having to take any deliberate action(don’t really work in short run so should be done in long run) 1. Most important stabilizer- tax system. When the economy goes into recession, the tax collected by gov goes down, this automatic tax cut stimulates aggregate demand and reduces the magnitude of economic fluctuations. 2. Government spending- when economy faces recession and workers are laid off, more applied for benefits and income support, this automatic increase in government spendingShow MoreRelatedNew Classical Macroeconomics Arose From The Monetarism And Rational Expectation School Essay922 Words   |  4 PagesIntroduction New Classical Macroeconomics arose from the Monetarism and Rational Expectation School in the 1970s and follows the tradition of classical economics. If the market mechanism is allowed to play its role spontaneously, which could solve the unemployment, recession and a series of macroeconomic issues. Keynesian economists believe that changes in the money supply will lead to changes in effective demand that will changes in the total economy. For economic cycle fluctuation, Keynesian economistsRead MoreBusiness Economics : An Important Effect On Business1595 Words   |  7 Pagesoperation (Worthington, Britton, Rees 2005). 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