Question

Question 4:
(a) Do you think that macroeconomic policy should be designed to achieve a measured unemployment rate of zero? Why or why not should this be the case?
(b) How did the classical economists interpret long-run unemployment? (2.5 marks)
(c) How does structural and cyclical unemployment differ and how concerned should policymakers be about these types of unemployment? (2.5 marks)

Please give Accurate Answers.

Answer 1

4.

A.

Macroeconomic policy, should not focus to achieve a zero percent unemployment, because it will bring higher inflation rate while unemployment in some form such as frictional and structural will always exist. Hence, a policy too focused on it, will create demand pull inflation and economy in the long run will end up at a higher price level.

B.

Classical economists interpret long run unemployment as the voluntary unemployment where the people refuse to accept the work at the lower wage rates. If a good wage is given, then these unemployed people will also get employed. So, the economy will operate at the full employment level.

C.

Cyclical unemployment takes place due to different stages of the business cycle, but structural unemployment takes place due to the change in the government policies,  technological shift by the industries and other structural change in the economy. For example, employees being laid off due to recession, creates cyclical unemployment, whereas the unemployment due to skills getting obsolete among the workers, is the structural unemployment.

Policy makers should be concerned about the cyclical unemployment, because a good policy can reduce or eliminate the impact of business cycle upon creating cyclical unemployment. Though, structural unemployment will always be present in the economy, even if the economy is operating at the potential level. So, it should not be the primary concerns for the policy makers.