Principles of Macroecomomics Essay Example | Topics and Well Written Essays - 2500 words

Principles of Macroecomomics - Essay utilizationUnemployment can be measured by the claimant count or the standardized ILO unemployment measure. (Abel, 2010) Unemployment can be classified advertisement into two broad categories Equilibrium unemployment and Disequilibrium unemployment. When Aggregate Demand for Labor (ADL) equals Aggregate Supply of Labor (ASL) at market wage rate, the get market is said to be in equilibrium. The difference between the ASL and the repulse force is known as equilibrium unemployment or the natural rate of unemployment. This represents the excess of people looking for for work over those actually willing to accept jobs. This can be seen in the graph shown below. (Dornbusch, 2006) As shown in the diagram supra, distance AB is the equilibrium unemployment. This type of unemployment may occur due to frictional (irreducible minimum level of unemployment in a dynamic and growing parsimony), structural (resulting from the mismatch of skills and job oppo rtunities), regional (associated with specific regions often due to the concentration of industries in a region) or seasonal (associated with industries or regions where hire for pains is lower at certain times) causes. (Dornbusch, 2006) Disequilibrium unemployment occurs when real wages in the economy ar above equilibrium level. This means either the ASL exceeds the ADL or that stickiness in wages prevents wages falling to equilibrium level. The labor market is in a state of disequilibrium, it may be due to real wage (unemployment created when labor wages are deliberately maintained above market clearing level) or demand unequal unemployment (associated with cyclical downturn or recession). (Dornbusch, 2006) Now let us take the consider interest rate. cheer is a rate at which the interest has to be paid by the borrower to the lender apart from the normal amount. Interest rate is a tool of the monetary policy which the government uses in order shine the money supply of the e conomy in order to achieve macroeconomic objectives. Interest rates are of two types real and nominal. Real interest rates are interest rates that are form in accordance with the rate of inflation. On the other hand nominal interest rate refers to the amount, in money term of interest payable. (Dornbusch, 2006) There are many reasons that may chairman to a adjustment in the interest rates. Firstly, it may lead to short-term political gains. Politicians do this in order dispatch public support however, it may later lead to problems later on. Deferred consumption may also lead to changes in interest rates. Speculation may lead to changes in the interest rates as well, for fount if consumers think that interest rates are going to rise, the consumers would demand more bonds and thus increase demand for bonds, this would lead to an even higher increase in interest rates. (McEachern, 2008) High levels of unemployment means that the economy is not functioning at its production possibil ity function, that is, it is underachieving and that it can produce more goods but that would require the economy to function more efficiently than it is doing right now. Unemployment imposes private, economic as well as social costs. In that not only does it represent a was of valuable resources but also causes suffering in toll of increased poverty, falling living standards and psychological disorders. Naturally, the costs of unemployment depend on its severity and duration. The costs