Current Economic Analysis

Topics: Monetary policy, Keynesian economics, Unemployment Pages: 7 (2045 words) Published: May 3, 2009
Current Economic Analysis

Economics Define unemployment? Provide an example of the three types of unemployment. Which type of unemployment is most problematic and why? What type of unemployment problem(s) does the U.S. currently have and why? What is a possible solution to the unemployment problem(s)? Unemployment is the failure of a person to find jobs. (Schiller, 2006) This means that an unemployed person is one that is capable of working and is actively seeking for a job but is unable to find employment, which means that, this person is an active member of the labor force in search for job opportunities but unable to find one. This excludes full time students and homemakers who are not vigorously looking for jobs. Unemployment can be divided into three types known as frictional, structural, and cyclical (Schiller, 2006). The first form of unemployment is frictional unemployment. It arises because workers seeking better opportunities do not find them immediately. While looking for work they are counted as unemployed. The same concept is also applied to new graduate students that are looking for jobs. Example: A website project for a company is finished and the web designer is looking for more companies to design websites for. Structural unemployment is created during major changes in an economic system. Structural means that people don’t have the skills needed to find a job in today’s market. Example: The move from an industrial to a technological economy where so many people don’t have computer and communication skills needed to be employable in the new market. Cyclical unemployment is usually directly tied to the state of the economy. It occurs when there is not enough demand for labor. In other words, there are more people looking for jobs than they are available jobs at the market place. This type of unemployment exists due to inadequate effective aggregate demand. Example of that would be a layoff and cutbacks resulting from a recessionary economic phase such as the current trend at the Florida school system where they are laying off teachers because of budgetary cuts. Cyclical unemployment is the most problematic due to the general decline of the gross domestic product which means the current economy is weak. Currently, in the United States, the household, business, and government sectors are buying fewer goods and services. This is causing a slowdown in the economy. As a result, there is will a significant increase on the cyclical unemployment. There are several possibilities in order to solve the unemployment problem. The Government needs to try to create demand in the economy. It could: - Give grants to businesses to produce goods

- Cut interest rates to encourage spending
- Cut income tax to encourage spending
************************************************************ What are business cycles? What are some of the causes of business cycles? Where on the business cycle would you place the U.S. and why at this point in time? What are some current economic policies President Bush has used to try to improve the country’s economic condition? The business cycle is a predictable long-term pattern of alternating periods of economic growth and decline (recession). This periodic up-and-down movement in economic activity is measured by fluctuations in real GDP and other macroeconomic variables such as unemployment and inflation (Schiller, 2006) A variety of theories have been offered to explain what causes business cycles. Some economists relate upswings in the business cycle to new inventions, which stimulate investment in capital-goods industries which as a result causes business conditions to alternate between expansion and contraction. Other economists such as Friedman relate it to the monetary policy. He explains that the money supply is the primary cause of changes in business conditions. Other economists have argued that politics...

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