Low Employment

Question 1

Define unemployment

Answer 1

• unemployment of labour
• able to work
• actively seeking job
• unable to find job

Question 2

Define full employment

Answer 2

• FOP (LLCE) fully utilised
• supply of labour=demand for labour
• unemployment that exists when economy is at full employment = natural rate of unNt
• full employment when unNt falls to 2-3%

Question 3

Economically active population

Answer 3

• labour force

- employed & unemployed (not working but actively looking for work)

Question 4

Economically inactive population

Answer 4

• housewives
• full time students
• physically, mentally disabled
• old/retired
• voluntarily unemployed

Question 5

Define cyclical unemployment

Answer 5

• downswing of business cycle (recession)

- caused by insufficient AD

Question 6

Define recession

Answer 6

at least 2 consecutive quarters of decline in real GDP

Question 7

Example of recession

Answer 7

• USA recession, demand for SG exports drop, (X-M) drop (main trading partners), leftward shift in AD curve (at P0, AS exceed AD)
• lead to surpluses, accumulation of stocks
• firm need to lower prices to get rid of stocks, fall in profit
• firms reduce production, retrench workers
• national output/real GDP fall, unNt rise

Question 8

COVID-19 Pandemic

Answer 8

• April 2020
• unNt soared to 14.7%
• job losses reached 20.5 million in US

Question 9

Economic consequences of unNt

Answer 9

1. Output loss to economy
2. Revenue lost to gov
3. Further fall in AD
4. Greater disparities in distribution of income

Question 10

Output loss to economy

Answer 10

• persistent unNt sign of market failure, waste of scarce resources, loss of national output
• economy operating below max output
• greater loss of skills and motivation, skills become outdated in rapidly changing job market
• decreased labour productivity
• country’s economic growth potential reduced

Question 11

Revenue loss to the gov

Answer 11

-unemployed dont pay income tax
-unemployed spend less, pay less expenditure taxes (e.g GST)
-gov incur higher expenditures (e.g. unemployment benefits)
lesser left for other uses e.g. provision of pubic goods (roads), merit goods (hospitals)
- loss of tax revenue, increased gov spending leads to budget deficit
-results in opportunity cost being incurred

Question 12

Further fall in AD

Answer 12

-strong link btwn unNt rate and C
- consumer confidence falls due to rising unemployment rate
-willingness to spend drops , ppl save more as a precaution
-fall in C, AD falls ceteris paribus
- national output drops, unNt continues to rise
(same for I)

Question 13

Widening income gap

Answer 13

• unemployed no Y (incomes)
• ppl with jobs maintain their Y lvls
• certain grps (ethnic/regional) may be disadvantaged, more hard hit
• effects of income inequality and poverty more concentrated among these grps
• high unNt, persist over long periods of time, lead to increases social tensions and unrest

Question 14

Personal problems of unNt

Answer 14

• being unemployed, loss of income, increased debts as ppl borrow more to survive
• loss of self esteem , psychological stress, lower levels of health, family tensions/breakdown, suicide

Question 15

Social problems of unNt

Answer 15

• increased crime and violence
• drug use
• violence