Unemployment Case

Introduction.

Whenever we visit a foreign country and observe the standard of living over there compared to our local statistics, we often bump into questions like: Why is the average income high in some countries while it is low compared to others or ours? Why do prices sometimes rise rapidly while at other times they are relatively stable? Why do employment and production expand in some years and contract in others? These questions carry elements regarding the subject macroeconomics since they look into the workings of the entire economy. In the case between countries, the general economy is seen as a collection of interacting households and firms in various existing markets. Macroeconomics gives us the tool to understand how a change in one part of the world can have its effects there and elsewhere. Furthermore, this subject will give the edge into understanding why Japan faces deflation in the early 1990s or why economist predicts an employment crisis in US in the coming years. Macroeconomics covers a wide range of factors such as unemployment, inflation rates, government policies, economic growth and many more. As they co-relate together, we will be able to discover various results and how has the implemented measures lead a country’s economy into such conditions. In the following, macroeconomic factors together with their relationships will be discussed and able see how such factors can affect a country’s economy.

Unemployment.

According to the book entitled “Essentials of Economics”, the fifth edition written by N. Gregory Mankiw a professor of economics at the Harvard University, unemployment refers to those who were not employed, were available for work and had tried to find employment during the previous 4 weeks. In his book, he talks about four types of unemployment. They are the natural rate of unemployment, frictional unemployment, cyclical unemployment and the structural unemployment. (Fortune Sense@blogspot.com, Unemployment)

Natural rate of unemployment

Natural rate of unemployment refers to the value of unemployment of a certain economy

which commonly experiences. In regards to the world economy, unemployment tend to

differ from country to country as it is dictated by many factors such as inflation rates

government policies, political stability and many more.

frictional unemployment

Cyclical unemployment

Cyclical unemployment shows the deviation or fluctuations of unemployment from its

natural rate. Similar like the natural rate of unemployment, cyclical unemployment also

differs