What Are Some Macro Economic Effects of Unemployment?

What Are Some Macro Economic Effects of Unemployment?

  • Submitted By: xystus
  • Date Submitted: 12/12/2008 9:01 AM
  • Category: Business
  • Words: 419
  • Page: 2
  • Views: 1

First what is unemployment?

Unemployment occurs when a person is available to work and currently seeking work, but the person is without work.[1] The prevalence of unemployment is usually measured using the unemployment rate, which is defined as the percentage of those in the labor force who are unemployed. The unemployment rate is also used in economic studies and economic indexes such as the United States' Conference Board's Index of Leading Indicators as a measure of the state of the macroeconomics.
There are a variety of different causes of unemployment, and disagreement on which causes are most important. Different schools of economic thought suggest different policies to address unemployment. Monetarists for example, believe that controlling inflation to facilitate growth and investment is more important, and will lead to increased employment in the long run. Keynesians on the other hand emphasize the smoothing out of business cycles by manipulating aggregate demand. There is also disagreement on how exactly to measure unemployment. For example, the conservative government, when in power in the United Kingdom, changed the way in which employment was measured several times. Each time, the figure reduced (Social Trends).[citation needed] Different countries experience different levels of unemployment; the USA currently experiences lower unemployment levels than the European Union,[2][3] and it also changes over time (e.g. the Great depression) throughout economic cycles.

What are some macro economic effects of unemployment?

(1) Deflationary Pressures

Less money in the eocnomy means that consumers purchase a lesser amount of goods and services. Producers experience a decrease in the demand for their products and so they lower their selling prices to avoid having surplus stock; the price level falls.

(2) Decreased Growth

Increased unemployment usually coincides with a decreas in the growth of GDP, since less people are now working in...

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