Scribd Logo
Upload

Welcome to Scribd!

  • 2 views

    44-45. Demand and Supply Side Causes of Unemployment 2

    Uploaded by

    ryan sharma
    The document discusses demand-side and supply-side causes of unemployment and sorts various factors into these categories. It also presents diagrams to illustrate how different scenarios, such as an increase in interest rates, can cause unemployment through impacts on aggregate demand or supply. The document also discusses debates between classical and Keynesian economists around the relative importance of demand-side versus supply-side factors in determining unemployment levels.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    44-45. Demand and Supply Side Causes of Unemployment 2

    Uploaded by

    ryan sharma
    2 views12 pages
    The document discusses demand-side and supply-side causes of unemployment and sorts various factors into these categories. It also presents diagrams to illustrate how different scenarios, such as an increase in interest rates, can cause unemployment through impacts on aggregate demand or supply. The document also discusses debates between classical and Keynesian economists around the relative importance of demand-side versus supply-side factors in determining unemployment levels.

    Original Title

    44-45._Demand_and_Supply_side_causes_of_unemployment__2_

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document discusses demand-side and supply-side causes of unemployment and sorts various factors into these categories. It also presents diagrams to illustrate how different scenarios, such as an increase in interest rates, can cause unemployment through impacts on aggregate demand or supply. The document also discusses debates between classical and Keynesian economists around the relative importance of demand-side versus supply-side factors in determining unemployment levels.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    2 views12 pages

    44-45. Demand and Supply Side Causes of Unemployment 2

    Uploaded by

    ryan sharma
    The document discusses demand-side and supply-side causes of unemployment and sorts various factors into these categories. It also presents diagrams to illustrate how different scenarios, such as an increase in interest rates, can cause unemployment through impacts on aggregate demand or supply. The document also discusses debates between classical and Keynesian economists around the relative importance of demand-side versus supply-side factors in determining unemployment levels.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    You are on page 1of 12

    Y12

    Macroeconomics
    Demand-side and Supply-side causes of
    unemployment
    Review starter

    Forgetting curve for


    newly learned
    information
    Demand or Supply

    We can sort the factors that cause unemployment and employment


    into demand-side and supply-side

    Demand-side = A lack of AD in the economy causes a lack of demand


    for labour as firms reduce their output. (demand deficient)
    Supply-side = Workers are less able to supply their work for various
    reasons such as incompatible skills, immobility or social reasons.
    Demand or Supply?

    On the sheet, sort the


    factors into supply or
    demand factors affecting
    employment
    /unemployment
    Demand Side Supply side
    ● High interest rates ● Geographical immobility
    ● Recession in the economy ● Inward migration
    ● Negative multiplier ● Lack of affordable childcare
    ● Financial crisis ● Frictional unemployment
    ● Any change in components of AD ● Changes in the retirement age
    ● Changing relations with key trading ● Cost of higher education
    partners ● Structural unemployment
    ● Government policy on spending on ● Change in skills using technology
    infrastructure etc ● Changes in costs of hiring workers -
    ● Inward FDI (e.g. national insurance
    ● Increased use of robots contributions)
    ● Government policies to encourage
    enterprise in the economy.
    Diagrams and unemployment
    Price LR Price LR SR Price
    level AS level AS AS2 level LRAS1 LRAS2

    SRAS SR SRAS
    PL1 AS1

    PL2 PL2 PL1

    PL1
    AD1 PL2

    AD2 AD AD
    Y2 Y1 Y2 Y1 Y1 Y2
    Real GDP Real GDP Real GDP
    output output output

    How would you choose which diagram to use?


    Supply and demand scenarios
    Work through the scenarios on the sheet explaining how they cause
    unemployment, using a diagram to support.
    Example: The government have increased interest rates
    ➔ This would affect the AD in the economy because, firms are Price LR
    level AS
    less likely to invest in expansion plans as the cost of borrowing
    rises, in addition, repayments on any loans already held will SRAS
    increase. PL
    1

    ➔ The higher costs of production will means firms will try to


    PL
    2

    reduce the number of workers they hire, causing


    unemployment in the economy. AD1
    ➔ This is seen by the AD shifting left from AD1 to AD2, output
    falling, and therefore unemployment rising, as shown by the AD2
    negative output gap between the LRAS curve and the new SR Y Y
    2 1

    Real GDP
    equilibrium point (Y2). output
    Which is more important?

    Are supply side factors or


    demand side factors more
    important?
    Which is more important?

    Classical economists Keynesian economists


    Emphasise supply side Emphasise the importance
    factors as the main cause of aggregate demand in
    of unemployment. determining unemployment.
    Demand side is mostly It’s all about the economic
    short term. cycle.
    Keynes and unemployment
    1. Wages are sticky downwards; this means workers are not willing to accept a wage cut
    2. If wages are cut then there is a fall in consumer spending this causes a fall in AD.
    Therefore this makes the unemployment situation worse.
    3. Efficiency Wages Theory. This states that if wages are cut workers become dispirited
    and work less hard leading to lower output.
    4. During recession confidence is low and firms are reluctant to spend money on employing
    more workers even at a lower wage.
    5. Keynes said in the long run wages may adjust, but in the long run we are all dead! In
    other words, why wait several years hoping wages will adjust downwards to reduce
    unemployment.
    ➔ This is why Keynes wanted gov. intervention... to stimulate!
    Keynes and unemployment

    ➔ In the 1930s mass


    unemployment continued
    until WW2. However,
    when governments did
    begin to spend on
    military expenditure,
    unemployment fell.
    How much should gov. intervene?

    Answer this question:


    To what extent would government
    intervention reduce unemployment in the
    UK economy?

    You might also like