Question

Discuss the impact of unemployment on a society and the individuals that are unemployed. Include in your discussion descriptions of the various types of unemployment. Finally, provide your solutions to lower unemployment.

Answer 1

Impact:

Unemployment restricts economic growth. GDP of a country is the indicator of growth, which is the aggregate of consumption spending (C), investment spending (I), and government spending (G) for a closed economy.

GDP = C + I + G

If there is unemployment, purchasing power of consumers would go down and it reduces C and GDP.

Types of unemployment are given below:

Seasonal unemployment: There may be an employment of people during a specific period. Examples are agricultural workers, painters, etc.

Cyclical unemployment: It happens because people are not demanded for work because the economy is down.

Structural unemployment: This unemployment occurs, since workers’ skills are outdated.

Frictional unemployment: It happens because people left jobs but they don’t have new jobs in hand.

Solutions:

No.1) Expansionary fiscal policy: government may take a policy of lowering the tax rate which increases disposable income, C, and GDP. The overall impact is to increase employment.

No.2) Expansionary monetary policy: The central bank of the country, Federal Reserve, may take this policy by lowering interest rate, purchasing government bonds, or printing new notes for increasing money supply in the country. Once there is an increasing money supply there would be an increasing GDP and an increasing scope of job opportunity, which tends to decrease unemployment.