Archive for August, 2011

Internal Assessment Practice #1

What are the costs of a high level of unemployment?

Unemployment is when a person does not have a job and is not get paid. However, if they suffer, the whole economy will suffer too because there are many effects causing the economy as a whole.

  • Unemployment causes the loss of tax revenue, meaning that the unemployed people are not earning money; therefore, the government gets less tax.
  • When there is unemployment, the government has to spend more which increases the government expenditure.
  • When there are not many people working, the production will not be efficient and fast so the national GDP will be lower.
  • Loss of profits

Suggest and evaluate measures to deal with high unemployment

Unemployment is when a person does not have a job and is not get paid. However, if they suffer, the whole economy will suffer too because there are many effects causing the economy as a whole.

Measures to deal with high unemployment are demand side policies and supply side policies. There are 2 difference economic viewpoints, which are neoclassical view and the Keynesian view.

The neoclassical view is most likely to agree with the supply side policies to measure the deal with high unemployment. The supply side policies are the micro economic policies, which is to improve the supply side potential of an economy and they thereby contribute faster rate of growth of the GDP or the real national output. They are policies that increase the aggregate supply by increasing the incentives to work. Supply side policy is the key to achieving sustained economic growth without the rise in inflation. Supply side policies are designed to be the shift in aggregate supply to improve the economy by reducing or removing the minimum wage, reducing the power of the trade unions and reducing government unemployment benefits (reduction in tax rates).

On the other hand, the demand side policies aim to deal with just the demand. In general demand side policies aim to change the aggregate demand in the economy. A.D. is made up of consumer spending + government spending + investment + exports – (minus) imports.

So anything that affects these factors will affect demand. We tend to use these for short-term changes – if inflation is getting too high, we increase interest rates for example to cool the economy down.

Demand side policies include monetary policy (changing interest rates and money supply) and fiscal policies (changing taxation and govt. spending)

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