Micro & Macro Aspects of Unemployment | Smash A-Level Economics Paper 3 in 2024!
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- Опубликовано: 22 сен 2024
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Hi Geoff, if you are answering a question on supply side policy on economic growth. Would it be okay to talk about how one supply side policy leads to a shift lras and how another leads to a rise in AD? And vice versa for demand side policies?
Most supply-side policies also have an impact on demand - the obvious examples being (i) infrastructure projects (ii) market liberalisation that attracts new investment.
For macro effect of rising unemployment:
lower C (60% AD), negative multiplier as lower demand for businesses = lower Investment (double AD shift in) = second-order effect of cyclical unemployment, as wider negative output gap - ceterus parabus- so lower direct tax revenues (income tax =20% gov tax comp.) so worsened fiscal deficit (4.2% GDP).
Would I stop there? Or can I keep going to effects of a persistent fiscal deficit and decrease in real GDP for confidence in UK economy = similar mass selling-on of bonds seen from Lizz Truss mini-budget = prices go down, yields up (fixed-coupon rates) and crowding out effect as interest on debt instruments in economy hence increase = collapsing AD as private sector cannot fund C and I?
is that me getting too caught up in theory chain of reasoning rather than what is realistic?
Could you use backwards bending supply curve - negative income effect - to illustrate inactivity for the highly payed: employment driven to extinction as wage increase diagrammatic analysis
Could you say that as a result of unemployment, a macro affect is that as people's incomes will be reduced, their ability to save will be low (hence a low MPS) so banks may be less willing (contrary to the Harrod Domar model) to lend affecting AD such as decreased consumption and investment?
Certainly in low and middle income countries, the ability of banks to lend out to fund productive investment is hampered by high unemployment and very low per capita incomes.