Anjishu Bhattacharjee

ECON 201 0001-Intro to Economics

Douglas Bowles

10/25/2017

Studying and understanding the bigger picture of the economy has been the primary

focus of economists. Failure to understand the aggregate economic issues has hampered the

world markets in many ways. The great recession caused a huge impact in world markets during

the late 2000s and early 2010s which immensely originated in the United states. During those

times ,15 million men and women were fully unemployed, and another 10 million were working

with reduced hours (Sherman, 6). A recession has a domino effect in the economy where

businesses are affected by increased unemployment which leads to less growth and drop in

consumer spending (Steven Nicolas). This is true in most of the cases like when spending

decreases the demand is not high enough, causing the business to report losses and forcing to

reduce wages. Following this, business either hires new workers with low pay or loss of job for

the skilled workers which is increasing the unemployment rate. The unemployment rate tells that

how many people from the available pool of labor force are unable to find work (Thakur).

Unemployment doesn’t account for people who are not actively seeking for work. Due to

massive layoffs and no new jobs being created tends the consumer to consume or spend less, the

tendency to save more increases tightening the money supply. The drop-in demand lowers the

company’s growth rate and economy. Government or private organizations can take proper

measurements within a short period to cure the unemployment problem but there is no simple

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equation as there are economic factors and economists point of view, which must be taken into

consideration before going to any conclusion.

In classical view, the economists believe that government should play a very limited role

in the economy. This position on government is called austerity. It is even believed that the

markets would run well, and capitalism is best understood when the competition is allowed

without any limitations and restrictions. Classical economist sees that the capitalist economic

system tends to move forward to full employment, when unemployment rate is at four percent.

Full employment is achieved by an economy when there are no outside disruptions in the system.

“Disruptions or shocks like floods, droughts, wars or complex government policy mistakes”

(Sherman,16). This system autocorrects itself to full employment after the brief period of

unemployment due these disruptions. Recent natural disaster in Texas, Florida and neighboring

states has caused “thirty-three thousand loss of jobs in September in twenty seventeen and this

was the first monthly dip of employment in seven years” (Patricia Cohen). As economist Carl

Tannenbaum quoted after these events “As winds calm,” he said, my guess is employment

figures would stabilize” (Patricia Cohen). It is believed such unemployment crisis to be over as

soon as the situation normalizes. Slowly, more jobs will be created as the demand for

employment would increase after such outside shock. Unemployment automatically restoring to

equilibrium at full employment by its own competitive processes. At this point it means

government policy should pay more attention on cutting programs and practicing austerity and

let the private sector focus on recovery from the unemployment issue on their own.

However, the progressive economist argues and rejects to the point made by the classical

economists. Keynes who is considered to start a revolution that changed many views in

microeconomics and points out that a market economy can stay for a long period of time, in a

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situation of high unemployment and surplus supply in all markets (Quiggin John). The classical

view is that unemployment arises from problems in labor markets and can only be addressed by

fixing those problems. Progressives believe that the government should create new policy and

intervene in crucial time periodically when the economy is at a crisis, such as recessions. For

example, New Deal passed by Franklin D Roosevelt during the great depression. Progressives

also do not believe that a private economy will not “adjust the total demand up to the level

produced at full employment”. This means that there is proof of 37 recessions or depressions that

the economy could not restore its poor demand and heavy unemployment for long period of time

(Sherman,17). Yet for some Americans the wounds of recession have not fully healed explains a

lot that once a nation is at deep recession it is usually very hard to come out on its own to

equilibrium as the classical economists argued (Ben Casselman). Keynesians even argued in

contrast to the point when there is a drop-in demand for goods and services. As demand drops

there will be less production which will eventually lead to unemployment. Therefore, progressive

understands that no government should sit and do nothing when its economy is collapsing due to

the unemployment problem.

Moreover, technology and jobs being outsourced are also causes for people being

unemployed. Most of the works that were done manually are now industrialized dependent as

they are safer, faster and cheaper than the manual work. Companies replace human workers with

robots as they are more efficient. Job outsourcing is a problem nowadays, when U.S. companies

hire foreign workers instead of Americans because the companies can lower their labor cost

(Kimberly Amadeo). If high national unemployment continues it deepens the recession. History

has proved that either recession or depression is never good for an economy because when

consumers cut their spending, businesses cut payrolls to cope with falling earnings (Chris

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Seabury). Unemployment is an important statistic used by the government to measure the health

of the economy. If the unemployment gets too high it tries to stimulate the economy or create

jobs. The Federal Reserve can also step in with many different policies to save its economy.

The goals of monetary policy are to promote maximum employment, stable prices and

moderate long-term interest rates. By implementing effective monetary policy, the Fed can

maintain stable prices, thereby supporting conditions for long-term economic growth and

maximum employment (Monetary Policy Basics). An expansionary monetary policy increases the

money supply, lowers interest rate and increases the aggregate demand. When business loans are

more affordable, companies can expand to keep up with the consumer demand (Kimberly

Amadeo). This eventually lead them to hire more workers, whose incomes will rise.

Subsequently this will allow the consumers to spend on goods more often. Whereas the

restrictive monetary policy does the opposite and does not benefit the unemployment situation.

Taxation on the other hand is one of the primary fiscal policy tools government uses to reduce

unemployment (Unemployment & Fiscal Policy). High tax means consumers will reduce

consumption due to less income. When businesses have low revenue, consumers buy less, they

would hire less workers. So, decreasing tax and increasing spending can encourage economic

growth and reduce unemployment. When an economy grows the wages and salaries increase

with it. Sustainable economic growth means a rate of growth which can be maintained without

creating other significant economic problems, especially for future generations (Sustainable

growth).

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 Overall, governments role in fixing the economy is a must, as progressives suggest and

believes. Without the role of the government it is very hard to monitor every aspect of

macroeconomy. As it is a very risky job for economists or government policy makers to do this

all alone. We have been through many recessions and depressions while this economy and

reached a stable economy that we have today. It is hard to predict what the economy is going to

be like in the future, but we have monetary and fiscal policies along with government

intervention to help us through high unemployment.

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 WORKS CITED

1. Casselman, Ben. “Why Some Scars from the Recession May Never Vanish.” The

New York Times, The New York Times, 5 Oct. 2017,

www.nytimes.com/2017/10/05/business/economy/recession-recovery.html.

2. Cohen, Patricia. “U.S. Lost 33,000 Jobs in September; Unemployment Rate Dips to

4.2%.” The New York Times, The New York Times, 6 Oct. 2017,

www.nytimes.com/2017/10/06/business/economy/jobs-report-

unemployment.html?rref=collection%2Fsectioncollection%2Fbusiness-

economy&action=click&contentCollection=economy®ion=stream&module=stream_

unit&version=latest&contentPlacement=7&pgtype=sectionfront.

3. Kimberly Amadeo https://www.thebalance.com/how-outsourcing-jobs-affects-the-u-

s-economy-3306279

4. Monetary Policy Basics, www.federalreserveeducation.org/about-the-fed/structure-

and-functions/monetary-policy.

5. Nickolas, Steven. “Why does unemployment tend to rise during a

recession?” Investopedia, 25 Mar. 2015,

www.investopedia.com/ask/answers/032515/why-does-unemployment-tend-rise-

during-recession.asp.

6. Quiggin, John. “The big issues in macroeconomics: unemployment.” Crooked

Timber, 3 Jan. 2013, crookedtimber.org/2013/01/03/the-big-issues-in-

macroeconomics-unemployment/

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7. Seabury, Chris. “Recessions and Depressions Aren't So Bad.” Investopedia, 20 Oct.

2017, www.investopedia.com/articles/economics/09/lessons-recessions-

depressions.asp.

8. Sherman, H., & Meeropol, M. A. (2014). Principles of macroeconomics: activist vs

austerity policies. Retrieved from https://ebookcentral.proquest.com

9. Sustainable growth,

www.economicsonline.co.uk/Managing_the_economy/Sustainable_growth.html.

10. Thakur, by Madhuri. “Macroeconomics Problems | Interest Rate Inflation &

Unemployment.” EduCBA, 5 Apr. 2017, www.educba.com/macroeconomics-

problems/.

11. “Unemployment & Fiscal Policy.” Chron.com,

smallbusiness.chron.com/unemployment-fiscal-policy-12614.html.