8) Unemployment 3 - MB

Question 1

What is the consequence of involuntary unemployment to an individual?

Answer 1

Is the opportunity cost of forgone earnings, and the negative impact on their household’s budget. Furthermore, the need to rely on Jobseeker’s Allowance may impose a cost in terms of their sense of self-worth and dignity

Question 2

What is the consequence of unemployment to the economy? (PPC)

Answer 2

It is operating within, rather than on, the PPC, and so failing to make best use of scarce resources, the level of aggregate output is lower than it could otherwise be

Question 3

What is the consequence of unemployment to the government?

Answer 3

The opportunity cost of lower taxes; income tax, VAT and corporation taxes will be lower than if more workers were employed as workers are earning, and buying, much less than if they were employed. Furthermore, government will have higher spending from Jobseeker’s Allowance and universal credit

Question 4

What are the two advantages of lower unemployment?

Answer 4

1) fewer long term unemployed
2) multiplier effects

Question 5

An advantage of lower unemployment is a fewer long term unemployed, how is this good?

Answer 5

Long term unemployed are particularly difficult to get back into work. They become deskilled and despirited, which can lead to an increase in crime - imposing further costs on society

Question 6

An advantage of lower unemployment is the multiplier effects, how are multiplier effects advantageous?

Answer 6

Of lower unemployment is caused by higher employment, then there are multiplier effects from the additional spending, increasing income for other workers and increasing profits for firms

Question 7

What are 3 disadvantages of lower unemployment?

Answer 7

1) inflationary pressures
2) type of employment
3) size of labour force

Question 8

Explain how inflationary pressures are a disadvantage of lower unemployment

Answer 8

• conflicts with low inflation objective
• a very low level of unemployment makes it difficult for firms to hire additional workers, leading to firms bidding up wage rates, and the price level - which leads to the associated costs of inflation

Question 9

Explain how “type of employment” is a disadvantage of lower unemployment

Answer 9

Lower unemployment may hide ‘unemployment’ where workers have accepted part time jobs, but would prefer to work full time. Low unemployment figures may hide poor quality employment

Question 10

Explain how ‘the size of the labour force’ are a disadvantage of lower unemployment

Answer 10

If unemployment falls due to workers choosing to leave the labour force (eg retiring, loosing the skill) the unemployment figures look better without a positive impact on the economy. Furthermore, once left, it is rare that workers re-join the labour force - permanently lowering the productive capacity of the economy

Question 11

Judgement: What is the effect of full employment? Part 1

Answer 11

The effect of full employment depends on where full employment is defined to be. If full employment is regarded as a situation with no cyclical or demand-deficient unemployment, then an increase in aggregate demand would put upward pressure on the price level.

Question 12

Judgement: What is the effect of full employment? Part 2, what do some economists argue that full employment is?

Answer 12

However, some economists have argued that full employment should be regarded as the level of unemployment that does not lead to an acceleration in the inflation rate. Either way, given the negative consequences of high unemployment, full employment is an important objective of macroeconomic policy