Unemployment pt 3

Question 1

Cyclical unemployment

Answer 1

Caused by a a lack of AD and a downturn of the business cycle. Happens during recession/depression and is involuntary, can affect any industry

Question 2

Seasonal unemployment

Answer 2

Caused by ever-changing seasons. E.g. catering and tourism

Question 3

Frictional unemployment

Answer 3

Time spent between jobs when searching for jobs or transferring from one job to another. E.g. time lags in the labour market

Question 4

How to help with cyclical unemployment?

Answer 4

It is caused by a lack of AD, so it can be helped using demand side policies:
-Lower interest rates(increased business lending- Higher I)
-Lower exchange rates (More expensive exports and cheaper imports- Higher Nx)
-Lower direct taxes (income taxes- Higher C)
-Government spending on infrastructure

Question 5

How to help frictional and seasonal unemployment?

Answer 5

A problem with labour supply causes frictional and seasonal unemployment, so we can fix this using supply side policies:
-Increased spending on education and training (New skills)
-Changes to minimum wage rates and benefits to incentivise work

Question 6

What are the costs of unemployment to the economy?

Answer 6

-Poverty rises
-Increases inequalities
-Fall in AD

Question 7

What are the costs of unemployment to the communities?

Answer 7

-Increased crime
-Rundown communities

Question 8

What are the costs of unemployment to the unemployed person?

Answer 8

-Loss of income
-Fall in real living standards
-Psychological costs

Question 9

What are the costs of unemployment to the government?

Answer 9

-Paying more benefits
-Fall in tax revenue
-Budget defecit