Question

‘Cyclical unemployment is a major concern for macroeconomics policymakers’. Do you agree or disagree with this statement? Discuss this statement using concepts relating to unemployment. (2.5 marks, approximately 50-80 words)

Part B What is the relationship between the money supply curve and interest rate? Explain the effect of an increase in money supply on the money market equilibrium (Interest rate and Quantity).

Answer 1

Yes, I agree that cyclical unemployment is major concern for policy makers. Because as we know cyclical unemployment is the unemployment which arises due to the up and down in the business cycle. The cyclical unemployment rises when there is recession in the economy and decline when there is expansion in the economy.

In simple words we can say that cyclical unemployment depends on the consumer demand in the economy, when demand reduce the firm reduce there production capacity due to which the firm also reduce the number of workers. So the cyclical unemployment directly relate to the macro economics situation and depends on demand.

To reduce the cyclical unemployment the policy maker use monetary and fiscal policy which takes time to show the results, so the cyclical unemployment is the major concern for policy makers.

B. There is inverse relation between the money supply and interest rate. When money supply increases the interest rate reduces and vice versa.

When money supply increases in the economy, the interest rate reduces and quantity of increases.