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    How Unemployment Rates Affect The Economy

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    aiman
    Unemployment rates are a key indicator of an economy's health. When unemployment rises, it negatively impacts the stock market and overall economy in several ways. First, unemployed individuals have less disposable income to spend or invest. Additionally, higher unemployment means fewer tax revenues for governments, increasing deficits. It can also trigger a vicious cycle where more job losses occur as less money circulates in the economy. Finally, rising unemployment is linked to increased foreclosure and bankruptcy rates, lowering home values. Therefore, a declining stock market often follows disappointing unemployment reports, as investors fear the ripple effects of higher joblessness throughout the economy.

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    How Unemployment Rates Affect The Economy

    Uploaded by

    aiman
    23 views2 pages
    Unemployment rates are a key indicator of an economy's health. When unemployment rises, it negatively impacts the stock market and overall economy in several ways. First, unemployed individuals have less disposable income to spend or invest. Additionally, higher unemployment means fewer tax revenues for governments, increasing deficits. It can also trigger a vicious cycle where more job losses occur as less money circulates in the economy. Finally, rising unemployment is linked to increased foreclosure and bankruptcy rates, lowering home values. Therefore, a declining stock market often follows disappointing unemployment reports, as investors fear the ripple effects of higher joblessness throughout the economy.

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    Unemployment rates are a key indicator of an economy's health. When unemployment rises, it negatively impacts the stock market and overall economy in several ways. First, unemployed individuals have less disposable income to spend or invest. Additionally, higher unemployment means fewer tax revenues for governments, increasing deficits. It can also trigger a vicious cycle where more job losses occur as less money circulates in the economy. Finally, rising unemployment is linked to increased foreclosure and bankruptcy rates, lowering home values. Therefore, a declining stock market often follows disappointing unemployment reports, as investors fear the ripple effects of higher joblessness throughout the economy.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    23 views2 pages

    How Unemployment Rates Affect The Economy

    Uploaded by

    aiman
    Unemployment rates are a key indicator of an economy's health. When unemployment rises, it negatively impacts the stock market and overall economy in several ways. First, unemployed individuals have less disposable income to spend or invest. Additionally, higher unemployment means fewer tax revenues for governments, increasing deficits. It can also trigger a vicious cycle where more job losses occur as less money circulates in the economy. Finally, rising unemployment is linked to increased foreclosure and bankruptcy rates, lowering home values. Therefore, a declining stock market often follows disappointing unemployment reports, as investors fear the ripple effects of higher joblessness throughout the economy.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 2

    How Unemployment Rates Affect The

    Economy
    By Paul Hudson, Apr 22 2013

    After new heights the past few months, the S&P 500 just had the worst
    week of the year due to a disappointing jobs report. The Dow Jones
    lost more than 40 points, the Nasdaq dropped 0.7% and the S&P 500
    fell 0.4% just on Friday. But how/why does the unemployment rate
    affect the stock market?

    In addition to many different indicators such as GDP, inflation and


    interest rates, the unemployment rate of a country is a very common
    measure for determining the health of an economy. I am sure that in
    your first economics class you learned that unemployment is a key
    macroeconomic indicator to determine the health of an economy.

    However, there is an ongoing debate regarding the extent to which the


    stock market should be guided by unemployment rates. It is a really
    simple argument, it should be merely common sense. If there are fewer
    people with jobs, then they have less disposable income to spend on
    investments.

    Economists call unemployment a lagging indicator of the economy, as


    the economy usually improves before the unemployment rate starts to
    rise again. However, unemployment causes a sort of ripple effect
    across the economy.

    With one person losing his job, there is one less person that will pay
    state and federal income taxes, one less person that will pay additional
    sales tax revenue as a laid off worker will instantly cut back on their
    non-necessary spending due to less disposable income and worry
    about future financial security.

    This is an issue, as many countries are facing a big debt crisis that
    requires higher tax revenues to prevent a default. If the country’s
    government is not financially stable, then the banks and the whole
    financial system will experience a decrease in confidence translating
    to a downturn in the value of the stock market.

    In addition, practically every unemployed citizen in the U.S. will


    become eligible for unemployment insurance and will start slowly
    sucking money from the economy rather than contributing to it in the
    form of taxes, thus increasing the State's deficits and tax revenue.
    If the rate continues to rise quarter by quarter, the State will probably
    raise taxes in order to compensate for that loss in tax revenue, thus
    forcing everyone, both employed and unemployed, to experience a loss
    of disposable income. Again that loss in disposable income becomes a
    ripple effect, and less money will be spent in the economy, leading to
    more people losing their jobs and it starts to become a vicious cycle
    unless it is broken by changes in policy or other factors.

    In addition there is the issue of the real estate market. Studies have
    shown that 45% of mortgages fall into foreclosure as a direct result of
    unemployment, thus with a rising rate of unemployment, foreclosure
    rates will also rise, leading bankruptcy rates to rise and the home
    values to fall. Hopefully the economy will soon get back on track to its
    record high.

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