-Frictional unemployment, people just between jobs, maybe looking for their firs
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Question
-Frictional unemployment, people just between jobs, maybe looking for their first job.
-Structural unemployment, people with obsolete or not-in-demand skills
-Cyclical unemployment, people out of work because demand for the products or sevices they make is insufficient.
Why do you think we don't care a whole lot about the first two types? Might it be that structual unemployment, caused by new technology (and so needing new skill sets) is actually a good thing?
What's included, and what's excluded, from the 'natural rate of unemployment ' (the NRU) ?
Can fiscal or monetary policy be used to change the rate of unemployment? If so, how?
Explanation / Answer
We do not care about first two types of unemployment because frictional and structural unemployment are temporary in nature. Frictional unemployment will always remain because their will always be individuals in the economy who are looking for new jobs or who are changing jobs. Also structural unemployment in the economy can be controlled to an extent by imparting skills to the individuals so that they can adopt to the new technological changes.
The natural rate of unemployment is generally around 4 to 5 per cent in an economy. It includes frictional and structural type of unemployment and excludes cyclical type of unemployment.
Yes, expansionary fiscal policy will lead to increase in the level of national income by increasing the aggregate demand in the economy. Thus, it will increase production and reduce unemployment levels in the economy. On the other hand, expansionary monetary policy by increasing the money supply will lead to fall in the rate of interest . This fall will increase the investment level in the economy. Thus, overall level of national income will increase and thus production will increase. It will lead to fall in the level of unemployment.
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