5. Economic Performance - Unemployment, Costs & Benefits Flashcards
What are the cost of high unemployment?
Less outputDeterioration of gov finances - higher spending on benefits - opportunity costsHysteresis Social Costs - depression, stress, anxiety etc.Reduced trade in other countries - UK less appealing export destination. UK buy less imports bc lower of incomesLoss of status/self-worth
What is hysteresis?
Hysteresis - ppl become more discouraged when looking for employment - become deskilled/demotivated - drop out of labour force - higher natural unemployment lvl - PPF shifts in - AD falls also
What are the benefits of unemployment?
Firms benefit - greater pool of workers to choose fromWorkers - have more time to search for the best job for them
What are the evaluation points for the costs and benefits of unemployment?
The type of unemployment will dictate the duration and impact of it.The severity or scale of the unemployment will also affect the impact of it.The lvl of benefits offered - don’t want to incentivise unemployment but need to support unemployedHow developed is the country? Does it have a welfare state etc.
What are the consequences of hysteresis?
Hysteresis causes the PPF and LRAS of an economy to shift inwards - this will mean that AD is likely to fall in the short-run also. The economies trend rate of growth falls dramatically, this means they can only grow at a slower rate going forward bc otherwise they’ll experience inflationary pressure (where actual growth»_space; trend rate)
Can hysteresis be avoided?
Keynes would say yes, he would recommend the use of expansionary fiscal policy to boost AD to counteract the decrease in AS allowing an economy to maintain its equilibrium point.
Are the effects of hysteresis irreversible?
Essentially yes it is irreversible, while the economy will eventually get back to the point it was at prior to the recession but even then they have lost out on the decade (or so) of growth they would’ve experienced without a recession.
Which recent recession created hysteresis?
The credit crunch.
What were the causes and cost of the credit crunch?
The credit crunch was caused by irresponsible lending by banks to people unlikely to pay back loans on mortgages. For further detail see video. Factories closed and didn’t return, factories shift offshore, Cyclical UE demotivated workers leading to deskilled people, Brain Drain as people with educations left countries in recession.
