mr.bevan
  • Home
  • IB Business Management
    • 01 Business Organization and the Environment >
      • 1.1 Introduction to Business Management
      • 1.2 Types of business organizations
      • 1.3 Organizational objectives
      • 1.4 Stakeholders
      • 1.5 External Environment
      • 1.6 Growth and Evolution
      • 1.7 Organizational planning tools
    • 02 Human Resources >
      • 2.1 Human Resource Planning
      • 2.2 Organizational Structure
      • 2.3 Leadership and Management
      • 2.4 Motivation
      • 2.5 Organizational and corporate cultures
      • 2.6 Employer and employee relations
    • 03 Finance and Accounting >
      • 3.1 Sources of finance
      • 3.2 Costs and revenues
      • 3.3 Break-even analysis
      • 3.4 Financial Accounts
      • 3.5 & 3.6 Ratio Analysis
      • 3.7 Cash flow
      • 3.8 Investment appraisal
      • 3.9 Budgets
    • 04 Marketing >
      • 4.1 The Role Marketing
      • 4.2 Marketing Planning
      • 4.3 Sales Forcasting
      • 4.4 Market Research
      • 4.5 Product >
        • 4.5 Price
        • 4.5 Promotion
        • 4.5 Place
      • 4.7 International Marketing and Globalization
    • The Exam
  • IB Economics
    • 01 Microeconomics >
      • 1. The Foundations of Economics
      • 1.1 Demand and Supply
      • 1.2 Elasticities
      • 1.3 Government Intervention
      • 1.4 Market Failure
    • 02 Macroeconomics >
      • 01 Level of Economic Activity
      • 2.2 Aggregate Demand
      • 2.3 Aggregate Supply
      • 2.4 Macroeconomic Equlibruim
      • 2.5 Unemployment
      • 2.6 Inflation
      • 2.7 Economic Growth
      • 2.8 Equity in the distribution of income
    • 03 International Economics >
      • 3.1 Free Trade
      • 3.2 Protectionism
      • 3.3 Exchange Rates
      • 3.4 Balance of Payments
      • 3.5 Economic Integration
    • 04 Development Economics >
      • 4.1 Economic Development
      • 4.2 Measuring Development
  • Individuals & Societies 8
    • 01 Belief systems and their influence on culture
    • 02 How are societies governed?
    • 03 Japan: Patterns of Interaction
    • 04 Japan's Economic Miracle
  • Individuals & Societies 7
    • 01 The Individuals and Societies Toolbox
    • 02 Economic Growth and Development
    • 03 Demography
    • 04 How has globalization shaped the world?
  • AP World History
    • Free Response Questions
    • 10,000 BCE - 600CE
    • 600 - 1450
    • 1450 - 1750
  • AP Human Geo
    • 01 Geography its nature and perspectives
    • 02 Population and Migration
    • 03 Cultural Geography
    • 04 Political Geography
    • 05 Urban Geography
    • 06 Economic Geography
    • 07 Agricultural Geography
    • Exam Review
  • Previously Taught Courses
    • G12 Economics >
      • Basic Economic Ideas
      • Producing and Consuming
      • Financial Capability
      • Managing the Economy
    • G10 World History >
      • 01 Exploration, Scientific Revolution and the Enlightenment
      • 02 The American Revolution
      • 03 France: Absolute Monarchy & Revolution
      • 04 The Industrial Revolution
      • 05 Imperialism and Nationalism
      • 06 WW1
      • 07 Inter-War Period
      • 08 WW2
    • G9 World History >
      • 01 Human beginnings and early civilizations
      • 02 Mediterranean Classical Civilizations (Greece) >
        • Mediterranean Classical Civilizations (Rome)
      • 03 Classical China
      • 04 The Muslim World
      • 05 Interregional Networks and Contacts 500 - 1450
      • 06 The Renaissance and Reformation >
        • Oral Presentations
    • G9 Social Studies >
      • History >
        • Analyzing Sources
      • Geography
    • G7 Social Studies >
      • Introduction to Empowerment
      • Economic Empowerment
      • Political Empowerment
      • Cultural Empowerment
      • National Empowerment
      • 04 Resources and the environment
      • Finance and Accounting >
        • 3.1 Sources of finance
        • 3.2 Investment appraisal
        • 3.3 Working capital
        • 3.4 Budgeting
        • 3.5 Financial Accounts
        • 3.6 Ratio Analysis
  • Learning Tech
  • Writing Skills
  • Critical Reading

2.5 Unemployment

Picture
By the end of this unit you should be able to:
  • Explain what is meant by unemployment
  • Explain the difficulties involved in measuring unemployment
  • Discuss the costs of unemployment
  • Distinqush between the different causes of unemployment
  • Evaluate the measures that may be taken to reduce unemploymeny

What is unemployment, and what is it not?

Most governments have the key macroeconomic objective of achieving low levels of unemployment. Not being employed does not necessarily mean being unemployed. The unemployed consist of those registered as able, available and willing to work but cannot find work despite an active search.  

It is not just somebody who doesn't have a job!

Stay at home mothers and fathers, the retired, students and prisoners are all people who are not working, but neither are they actively seeking work – these people would not figure in the unemployment rate for a country or region.

Crowding Out

Picture
When governments run budget deficits in order to finance government spending to boost the economy a problem known as ‘crowding out’ can occur. To generate money for government spending, governments sell bonds to financial institutions such as banks, who then sell these on to consumers. What they are essentially doing to increasing demand for savings.

Here should have noticed a paradox as the government spends money to boost the economy, but by selling bonds they are increasing demand for savings which leads to less consumer and investment spending.

The given amount of savings in the economy is represented by the loanable funds curve. The price of these loanable funds is the interest rate. The increased demand for savings from D1 to D2 results in an increased interest rate from i1 to i2.

So even though the government wishes to increase aggregate demand (C+I+G+(X-M) by increasing government spending, the higher interest rate causes interest-sensitive private investment to fall, thus reducing aggregate demand.

Another way that the government can raise funds for spending is by raising taxes. As you know this can lead to a reduction in consumer and business spending and therefore a decrease in aggregate demand.

If the government raises the money for spending by taking out loans from banks then there will be less credit available to firms for investment and thus a decrease in aggregate demand. Also, the sheer amount of money the government is likely to borrow would have an upward pressure on interest rates. Higher interest rates mean firms and consumers are less likely to borrow and therefore spend.

Measuring unemployment

Types of unemployment