Question

Define how unemployment rates affect macroeconomics and show an example. In words discuss the topic.

Response should include:

• Quick summary of the topic

• Be clear on the macroeconomics behind whats going on

• What does this mean and why do we care.

Answer 1

• Quick summary

Unemployment has huge costs for the unemployed, to the community and to the economy. The unemployed individual not only suffers financially but also physically and emotionally. The community suffers due to increased crimes, decreased volunteerism and overall gloom. The lost productivity due to unemployment and increases subsidies put unfavourable pressure on GDP.

Recent pandemic shocker:- Covid-19 left more than 10 million Americans jobless in its first 2 weeks. The situation is so serious that the Coronavirus Aid, Relief, and Economic Security Act has expanded unemployment benefits to self-employed and part-time workers.

• Macroeconomics behind whats going on

Increase in unemployment sets the viscious economic cycle in motion which feeds on itself to continue until some concrete measures are initiated. The vicious cycle as propounded by Keynes suggest a direct relationship between fall in employment, fall in output and fall in income.

•What does this mean and why do we care

The unemployment needs to be kept in control if economy needs to achieve its fullest potential. The burden of unemployment could not be sustained endlessly by playing Robin Hood or deferring unempoyment costs to future.This could be achieve by targeting maximum good for all through complementing / supplementing market forces by regulators appropriately.