Unemployment Rate

Topics: Monetary policy, Inflation, Unemployment Pages: 4 (1537 words) Published: October 16, 2010
The nation’s high unemployment rate is a result of a severe drop in demand for goods and services. It’s not a reflection of longer-term structural changes in the economy but rather cyclical changes in the economy. The demand for goods has been limited because of tight credit, decreases in government budgets, suppression of demand by consumers and foreign markets, and the inability by the fed lower interest rates. Even with the low level of interest rates the Fed is currently practicing a tight monetary policy. The current 9.7 percent unemployment rate is because of cyclical forces rather than structural ones. Obama is currently trying to administer a program of active intervention to stimulate demand. This involves increasing aid to states, extending unemployment insurance benefits, stimulating small business lending and increasing energy-efficiency measures. Even though a recession can lead to permanently higher unemployment the number one priority is preventing the currently high rate of cyclical unemployment from becoming structural. Right now our current situation makes it impossible to completely stop the increase in unemployment. The Fed is focusing on keeping unemployment at a cyclical level, an increase in unemployment that occurs during recession or depression, and making sure it doesn't turn structural, unemployment that is due to changes in the structure of the economy that result in significant loss of jobs in certain industries. To help decrease unemployment the Feds would have to lower the interest rate. This would in return increase money supply and increase the risk for stagflation because it would cause a rapid increase in inflation which is even a more difficult problem to solve. High unemployment is due to cyclical changes in the economy but its possible for it to turn into structural changes. The Fed decided to implement a tight monetary policy versus an easy monetary policy because it was believed it would keep unemployment at...
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