Policies to reduce unemployment, the first box contains an AD/SRAS diagram with the AD shifting to the right to show an increase. However this is not on the page as I print them out and draw it on the page myself. The policies are key to your 25 mark essays whether it be in section A or B.
Polices to Reduce Unemployment
Type of Unemployment Key Points Analyse the policies to reduce this type of Evaluation
unemployment Key Links Breadth “The extent to which this policy will be
successful depends upon”
CYCLICAL Main Cause Fiscal Policy (Govt. spending (G), taxation (T) and borrowing (deficits))
Which type of unemployment it
(Lack of demand, negative Fall in AD (recession) reduces? Fiscal policy only tackles
Decreasing income tax increases CYCLICAL and NOT STRUCTURAL
output gap, related to the household’s disposable income. UK
economic cycle, involuntary, as it does not tackle the problem of
consumers have a MPC and ability to skills. (short term)
short term) Key objective of demand products has increased.
policy Households will increase consumer Its only useful during a recession as
spending or consumption. Assuming the majority of unemployment is
Increase AD households want to maximise utility and cyclical.
economic welfare. This increases AD
Key points from AD1 to AD2. Consumer spending
is a component of AD (C+I+X-M+G). It leads to higher levels of borrowing
Breadth firms will increase production levels in and increases the budget deficit
order to meet this additional demand. All problem for the future
this leads to an increase in Real GDP,
Y1 to Y2. Firms will need to demand and Only choose one point for evaluation
take on extras workers to meet this additional demand. The demand for labour is
derived demand. More vacancies and jobs are created. Those workers who have
the correct skills and experience who were unemployed can now apply for these
vacancies and newly created jobs.
Main Cause Monetary Policy (interest rates, money supply or exchange rates)
Which type of unemployment it
Fall in AD (recession) reduces? Fiscal policy only tackles
*SAME DIAGRAM*
CYCLICAL and NOT STRUCTURAL
Decreases interest rates means that costs of borrowing decreases. Its cheaper as it does not tackle the problem of
to take out loans, existing mortgage and loan repayment fall. Demand for loans skills. (short term)
then increases. Consumer expenditure increases. Effective or discretionary
Key objective of income increases. Investment expenditure increases. Firms will take advantage Lower interest rates may not mean
policy people and firms borrow more in a
of cheaper loans to buy either capital, expand their premises etc. All this leads to
recession as consumer and business
an increase in AD from AD1 to AD2. Consumer spending is a component of AD
Increase AD confidence is low
(C+I+X-M+G). Firms will increase production levels in order to meet this
additional demand. All this leads to an increase in Real GDP form Y1 to Y2.
Firms will need to demand and take on extra workers to meet this additional Only choose one point for evaluation
demand. The demand for labour is derived. More vacancies and jobs are
created. Those workers who have the correct skills and experience who were
unemployed can now apply for these vacancies and newl+y created jobs.
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