Principles of Macroeconomics

Running head: PRINCIPLES OF MACROECONOMICS
Principles of Macroeconomics
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PRINCIPLES OF MACROECONOMICS
(i) Based on the news clip, list and explain the main type of unemployment in U.S
during this period.
In 2008, United States had a massive loss of unemployment and the number starting
growing as the initial claims were troublesome . The recession signal was concentrated
majorly in manufacturing and construction and this loss of unemployment experienced
reduction in demand for goods and services because of cyclical unemployment. In this type
of employment, the firms need to adjust with the business either by cutting the hours of
qualified employees or provisionally laying off the skilled workers. In recession, if the
demand started to revive, the firms are not in position to hire more workers as there is lack of
skilled labourers resulting in collapse of aggregate demand. As per Levine (2013), the
number of workers working involuntarily below the 35 hours a week has been doubled for
the industries like financial activities industries and construction industries, which further
paved the path for the collapse of house market in 2007-2009. Soon, the underemployment
with stagnant unemployment rate as 5.5% had been hitting every sector leading to economy
wide reduction in demand and being the contributor of increase in loss of jobs (Isidore,
2008). This even led to onset of structural unemployment later as the unemployment rate had
increased from 5% in December 2007 to 10% in October 2009 and these anomalies of factual
data was the cause of permanent loss of job for the workers by creating a direct association
between job vacancies and unemployment. The provisional lay offs had become permanent in
2008-2010, with creating a wedge between the employee and employer relationship and the
forceful actions of firms to look for new opening as the lack of skill set led to lengthy
unemployment (Classen and Dunn 2012).
(ii) Discuss with relevant diagram on the fiscal measures that can be imposed by U.S
government in order to overcome the above type of unemployment.
Fiscal is a word that can be related to budget decisions. However, many Keynesian
economists believe that recession is a stage in business cycles lead the way to cyclical
unemployment which are mainly due to low aggregate demand. On the other hand, fiscal
policy gives rise to many strategies that helps in deploying the government budge to increase
or decrease the aggregate demand (Mankiw 2014). Fiscal policies can be either expansionary
and contractionary in nature depending on the nature to increase or decrease the aggregate
demand in the economy.