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

Unemployment rate is the ratio between number of unemployed people and the labor force of the country. It is an important indicator of labor market and the health of the economy. A higher unemployment rate not only impacts those who are unemployed at micro level, but to the whole economy at macro level.

Unemployment rate = ( number of unemployed people/labor force)×100

Unemployment rate affects the macroeconomics in the following ways;

• It reduces the GDP of the country, as unemployed people can't contribute to the GDP directly, unemployment leads to wastage of manpower resources, which could have otherwise used in production.
• The burden of unemployed people falls on employed work force, so it lowers the living standard of mass of people.
• Unemployment further decreases the level of consumption in the economy, a majority of product is domestically used , in such a case ,it decrease aggregate demand for goods and services, so a recession may occur in the economy.
• It reduces the disposable income, purchasing power, and above all the economy's output.