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before this, there already was an effort to understand many of the broad elements of the field.
Ragnar Frisch DEFINATION OF MACROECONOMICS: Macroeconomics is a branch of economics that deals with the performance, structure and behavior of a national or a regional economy as a whole. Since the 1930s economists have split their economics into two parts. Economics is divided into two main divisions • Microeconomics • Macroeconomics
MICROECONOMICS : Microeconomics is primarily focused on the actions of individual agents, such as firms and consumers, and how their behavior determines prices and quantities in specific markets. Microeconomics focuses on the “What?" and "For Whom?" questions. It examines how a society decides to produce the bundle of goods and services it does (the "what" question), and who gets these goods and services (the "for whom" question). It explores how various systems of incentives and ways of making decisions (such as "dollar voting" or various forms of political voting) work to solve the "what" and "for whom" questions. Central in much of this examination is the concept of economic efficiency. MACROECONOMICS :Macroeconomics deals with topics of inflation and unemployment. Macroeconomists study aggregated indicators such as GDP, unemployment rates and price indices to understand how the whole economy functions. Macroeconomists develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investments, international trade and international finance. Macroeconomics is a broad field of study, however, there are two major areas of research in Macroeconomics: The attempt to understand the causes and consequences of shortin national income (the business cycle). The attempt to understand the determinants of long-run economic growth (increases in national income). Macroeconomic models and their forecasts are used by both governments and large corporations to assist in the development and evaluation of economic policy and business strategy run fluctuations
DEFINATION: Unemployment is the state in which a person is without work, available to work, and is currently seeking work. It is a situation where there is non-availability of job for the persons. Its is an situation in which a person who is physically capable, mentally willing to work at existing wage rate does not find any job and is forced to remain unemployed.
and disagreement on which causes are most important.g. murder etc. Monetarists for example. Keynesians on the other hand emphasize the smoothing out of business cycles by manipulating aggregate demand. believe that controlling inflation to facilitate growth and investment is more important. changed the way in which employment was measured several times. Rate is determined as the percentage of those in the labor force without jobs. Different schools of economic thought suggest different policies to address unemployment. the conservative government. Each time. Different countries experience different levels of unemployment. the USA currently experiences lower unemployment levels than the European Union. when in power in the United Kingdom. social and political problem of the country. There is also disagreement on how exactly to measure unemployment. pickpocketing. the Great depression) throughout economic cycles.INTRODUCTION: It involves a waste of human resource and results in many social evils like theft. robbery. and will lead to increased employment in the long run. The unemployment rate is used in economic studies. There are a variety of different causes of unemployment. It’s a serious economic. and it also changes over time (e. It’s a cause as well as effect of poverty. the figure reduced (Social Trends). For example. .
Unemployment rates in the United States (1950 – 2005) .
some have the desire to have jobs only of their liking or giving better remuneration than that in the earlier jobs and therefore they prefer to remain unemployed. VOLUNTARY UNEMPLOYMENT: There are some persons in a society who for various reasons prefer to remain jobless even though there are possibilities of getting job. Such a kind of unemployment is referred to as VOLUNTARY UNEMPLOYMENT InVOLUNTARY UNEMPLOYMENT: Involuntary unemployment is a situation where a person is physically and mentally fit to work and also willing to work at existing wage rate. He is forced to remain idle even if he is willing to work. . but does not get a job.
Voluntary And Involuntary Unemployment RURAL UNEMPLOYMENT: This kind of employment prevails ion rural areas.g. India A) SEASONAL UNEMPLOYMENT: . The nature of problem is also complicated. There are only two types of unemployment commonly found in agricultural economy e.
cyclical. B) B)DISGUISED UNEMPLOYMENT: In the rural subsistence agrarian sector of the Indian economy. Disguised unemployment refers to that type of unemployment in which laborers appear to be working and employed but in reality. Industrial workers may be skilled or unskilled. Agriculture labour in India is mostly dependent on monsoon. Real-world unemployment may combine different types. . doctors.. Economists distinguish between five major types of unemployment. while all four might exist at one time. 1) Industrial Unemployment: This refers to unemployment amongst workers in industries and factories in urban areas. the problem of disguised unemployment is also typical. post graduates. towns and cities. engineers etc. However this type of unemployment does not exist in countries world wide. URBAN UNEMPLOYMENT: This type of unemployment is found in urban areas i. output would not decrease. they are not employed as they do not add to the total output.In an agrarian economy like India. i. It means joblessness amongst the graduates. In other words they are removed from their jobs. seasonal unemployment is the most significant type of unemployment in rural sector.e. 2) Educated Unemployment: It is the problem of educated middle class people of urban society. This are specific type of unemployment that exist only in few countries especially those in involved in agricultural activities like India. structural and classical.e. frictional. Industrial is open unemployment.
a surprise decrease in the money supply may shock participants in society. due to (say) pessimistic business expectations which discourages private fixed investment spending. so that if even all open jobs were filled. In this case. we may see recession and cyclical unemployment until expectations adjust to the new conditions. Gross domestic product is not as high as potential output because of demand failure. as during the Great Depression of the 1930s. or low (or negative) net exports may also have this result. Classical economics rejects the conception of cyclical unemployment. Some consider this type of unemployment one type of frictional unemployment in which factors causing the friction are partially caused by some cyclical variables. Then. It gets its name because it varies with the business cycle. This kind of unemployment coincides with unused industrial capacity (unemployed capital goods). under consumption. CYCLICAL UNEMPLOYMENT: This type of unemployment exists due to inadequate effective aggregate demand. For example. seeing the attainment of full employment of resources and potential output as the normal state of . the number of unemployed workers exceeds the number of job vacancies. Low government spending or high taxes. though it can also be persistent. some workers would remain unemployed.
Frictional unemployment coincides with an equal number of vacancies. New entrants (such as graduating students) and re-entrants (such as former homemakers) can also suffer a spell of frictional unemployment. payment. Numerically. it is therefore maximal when the labour market is in equilibrium. and a mismatch can result between the characteristics of supply and demand. they will invest some time and effort to find a better match. and a multitude of other factors. if the search takes too long and mismatches are too frequent. work time. Therefore. However. . location. Frictional unemployment exists because both jobs and workers are heterogeneous. since some work will not get done. However. the economy suffers. When for instance demand far exceeds supply. searching for new ones. It is sometimes called search unemployment and can be voluntary. it is compatible with full employment. taste. Such a mismatch can be related to skills. Workers as well as employers accept a certain level of imperfection. governments will seek ways to reduce unnecessary frictional unemployment.affairs. it accepts the theory to some extent as full employment can never be reached. but usually not right away. This is in fact beneficial to the economy since it results in a better allocation of resources. FRICTIONAL UNEMPLOYMENT: This unemployment involves people in the midst of transiting between jobs. the frictionally unemployed will be few as they will get many job offers. risk or compromise. attitude.
Mainly these are the changes in population. because the cost would exceed the technologicallydetermined benefit of hiring them (the marginal product of labour). abolishing minimum wages or employee protection). Generally. is called structural unemployment. It is long term phenomena..g. the number of job-seekers exceeds the number of vacancies. government policies. Its is chronic unemployment. it is found in developing economies. However. In simple terms. to make the labor market more like a financial market. Some economists theorize that this type of unemployment can be reduced by increasing the flexibility of wages (e. the problem here is not aggregate demand failure. real wages are higher than the market-equilibrium wage. like that of cyclical unemployment. institutions such as "the minimum wage" deter employers from hiring all of the available workers. In this situation. CLASSICAL UNEMPLOYMENT: In this case. technology etc. STRUCTURAL UNEMPLOYMENT: Unemployment which occurs due to fundamental changes in the structure of economy. .
. In many countries only those who have no work but are actively looking for work (and/or qualifying for social security benefits) are counted as unemployed. official statistics often underestimate unemployment rates. even though they are not employed. The statistic also does not count the "underemployed" .those with part time or seasonal jobs who would rather have full time jobs. HIDDEN UNEMPLOYMENT: Hidden. The same applies to those who have taken early retirement to avoid being laid off. Those who have given up looking for work (and sometimes those who are on Government "retraining" programmes) are not officially counted among the unemployed. Because of hidden unemployment. or covered. unemployment is the unemployment of potential workers that is not reflected in official unemployment statistics. but would prefer to be working. due to the way the statistics are collected.
There is considerable debate among economists as to the causes of unemployment. inherent in labour markets. such as minimum wage laws. In the set up of a modern market economy.Unemployment levels are increasing dramatically in many parts of the world. Classical economics tends to reject these explanations. taxes. there are many factors. inefficiencies. Causes of unemployment are varied and it may be due to the following factors: . which contribute to unemployment. Others point to structural problems. and focuses more on rigidities imposed on the labor market from the outside. and other regulations that may discourage the hiring of workers. Keynesian economics emphasizes unemployment resulting from insufficient effective demand for goods and service in the economy.
Rapid changes in technology Recessions .
Inflation Disability .
in . Undulating business cycles Changes in tastes as well as alterations in the climatic conditions. This may turn lead to decline in demand for certain services as well as products.
Attitude towards employers Willingness to work .
Perception of employees Employee values .
Discriminating factors in the place of work (may include discrimination on the basis of age. Ability to look for employment . ethnicity. class. color and race).
relating it to increases in the incidences of alcoholism. Some researchers have emphasized the importance of preventing youth from falling into unemployment traps.Unemployment has obvious and well-documented links to economic disadvantage and has also been connected in some discussion to higher crime rates especially among the young suicide. and a variety of physical complaints and illnesses. This is because unemployed youths are not able to gain experience and on-the-job training and because a history of joblessness signals that the individual may not have the qualities that are valued in the labour market. psychiatric hospitalization. but may also hinder future economic success. family breakdown. Robert Gitter and Markus Scheuer (1997) suggest that unemployment among youth not only causes current hardship. . child abuse. and homicide Garry Ottosen and Douglas Thompson (1996) broaden the consequences of unemployment.
p. been made to estimate the economic cost associated with unemployment. These include unemployment insurance programs and other types of welfare. and child over 16 years of age. Unemployment rates region Unemployment rate region Unemployment rate North America Middle East .000 for every man. as unemployment of parents will limit their capacity to finance the schooling of their children. woman. In addition to the loss of GDP. Peter Kenyon (1998) calculated that the loss of GDP associated with an unemployment rate above the full-employment rate is the equivalent of one year's worth of GDP over the past two decades.Attempts have. Ottosen and Thompson (1996. and Supplemental Security Income (Ottosen and Thompson 1996). such as food stamps. high unemployment increases the burden on social welfare programs. As education is the primary means of social mobility. Medicare. This implies that an unemployment rate of 7 percent costs the United States at least $400 billion annually in foregone output. this intergenerational effect will give rise to an inheritance of inequality. This is more than $2." Similarly. There are also intergenerational effects.5) noted that "the United States loses a little less than one percentage point of potential gross domestic product (GDP) or output for each one percentage point of unemployment. however. in Australia. Medicaid.
7 Italy 10.1 Colombia 20.6 Korea.Canada 6.6 Europe Asia France 9.3 South/Central America United Emirates Arab 2.5 Philippines 10.1 Germany 7.0 Africa Chile 8.1 . Republic of 4.8 United Sates 4.3 Argentina 15.5 Suriname 14.0 Turkey 7.8 Israel 8.4 Tunisia 15.0 Costa Rica 5.8 Peru 7.9 Japan 4.2 Algeria 29.3 Egypt 8.
.4 Eastern Europe Oceania Bulgaria 16.4 Australia 6.3 Singapore 4.5 Thailand 2.3 New Zealand 6.6 Czech Republic 8.7 Sri Lanka 8.1 To many economists. persistent unemployment is a sign of market failure because unemployment is a waste of scarce resources and leads to a loss of potential output and a reduction in allocative efficiency.Netherlands 3.4 Sweden 4.1 Romania 7.0 United Kingdom 5. The economy is operating below the maximum output it could achieve.4 Poland 16.0 Hungary 6. This might be illustrated by making use of a PPF or using the concept of the output gap.
2 4.7 5.0 6.7 4.0 5.1% 5.9 5. 2004.7 5.7 6.9 6.6 7.8 5.8 4.0% 5.Unemployment Rate by State: 2003. and 2005 Country United States Alabama Alaska Arizona Arkansas California 2003 2004 2005 6.8 7.4 .5 5.5% 5.
1 7.7 4.3 4.9 6.4 6.1 4.1 4.7 4.8 4.8 4.9 4.5 7.2 5.2 5.6 3.0 7.7 6.0 3.1% Massachusetts 5.8 .5 5.3 6.5% 5.9 5.5 3.0 4.6 5.3 5.1 4.2 4.8 5.4 4.2 5.8 3.8 4.1 3.2 6.4 4.6 4.0 7.3 3.7 4.5 4.7 5.2 5.2 4.8 5.7 6.8 5.1 7.3 4.0 5.7 5.1 4.8 4.8 6.1 8.4 5.2 6.5 4.6% 5.8 5.2 5.9 5.3 5.9 4.3 4.4 3.0 4.3 2.7 3.Colorado Connecticut Delaware District Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire of 6.1 4.4 4.6 6.6 4.
2 3.5 10.7 12.6 5.5 6.7 5.5 5.0 5.6 5.3 4.9 5.2 6.0 6.2 5.8 3.5 5.8 7.4 5.5 4.7 6.4% South Carolina 6.5 3.1 4.4% 3.5 5.3 4.9 4.1 5.4 5.6% 3.4 6.5 6.4 6.8 5.7 3.0 3.7 .1 5.3 5.New Jersey New Mexico New York North Dakota Ohio Oklahoma Oregon Pennsylvania Puerto Rico Rhode Island South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia 5.4 6.0 North Carolina 6.7 4.4 4.4 3.0 5.1 7.3 5.9 5.8 3.5 5.5 6.3 3.6 8.2 5.8 5.1 5.7 5.2 5.0 11.9 6.
CIA figures for world unemployment rates. 2006 .
The labour force expands as the real wage rises because there is a greater incentive to search for paid work and sacrifice leisure.the number of active participants in the labour market.The natural rate of unemployment is the rate of unemployment where the labour market is in a position of equilibrium. This means that the labour supply = labour demand at a given real wage rate. All those people willing and able to take paid employment at the going wage rate do so. Employment on the x-axis measures the total labour hours supplied by workers in the economy in a given time period. . The diagram below shows the labour supply (those willing and able to take work at a going wage rate) and the labour force . As the real wage increases. the total number of hours supplied by the labour force will expand.
The natural rate of unemployment is not zero . there is unemployment measured by AB.at the equilibrium wage W 1 in the diagram above. This is made up of frictional plus structural unemployment. At a wage rate W2 (above the equilibrium "marketclearing wage") employment contracts along the labour demand curve and total unemployment rises (see the diagram below) .
There is an excess supply of labour .some people who are willing and able to find employment cannot get paid work .Dis-equilibrium unemployment rises to the level shown by the distance CD. This is because labour demand has fallen and the labour force has expanded.
there is upward pressure on wage inflation that then feeds into general price inflation. unemployment cannot be held permanently below its natural level. Some argue if actual unemployment falls below the natural rate (i." (UK Monetary Policy Committee minutes).The Non Accelerating Inflation Rate of Unemployment is the level of unemployment at which inflationary pressures in the economy are stable. skill shortages exert upward pressure on wages and producer prices.e. equilibrium unemployment) . Consider this comment from the Bank of England. As unemployment falls towards the NAIRU. According to supply-side economists. until any further falls in unemployment lead to future higher inflation. . Clearly changes in unemployment do have an effect on the risk of inflation. "Developments in the labour market are a key determinant of domestically generated inflation.
These people will become more confident and employable. the Government and the economy. The Government needs demand in the economy. High unemployment has enormous costs for individuals. Reduce unemployment benefits or cut benefits all together Try to bring the country out of a recession. It could. airline .Reducing unemployment is a key target for all Governments. Make more information available in job centres. The way of solving unemployment will depend upon its cause METHODS: Government support to struggling industries in order to try to save industry Provide more training and education to the unemployed.g. This could help improve computer skills and communication. businesses. • Give grants to businesses to produce goods • Have projects such as road building • Cut interest rates to encourage spending to try to create jobs e.
Work experience with an environmental task A subsidised job with an employer Remaining in full-time education and training Work within the accredited voluntary sector . In June 1998 the Government launched a separate New Deal for Long-Term Unemployed People aged over 25+. The main options are: • • • and • force. The programme is designed to provide pathways back into work for the long term unemployed – many of whom have become outsiders in the labour market despite the continuing strength of the British economy.• Cut income tax to encourage spending NEW DEAL:Labour’s New Deal programme for young unemployed people was introduced across the UK in April 1998. Higher levels of employment and economic activity add to total national output and should help to improve the overall performance of the labour market in sustaining long run economic growth.
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