- Created by: Shaz
- Created on: 30-08-14 16:32
Evaluate macroeconomic policies which may be used to reduce the level of unemployment in the UK
Unemployment occurs when a person who is actively searching for employment is unable to find work. Also, unemployment is one of the six macroeconomic objectives, so it is important unemployment rates in the UK stay low. There are 3 main policies which may be used to reduce the level of unemployment in the UK. These are fiscal policies, monetary policies and supply side policies. In this essay I will look at each policy in depth and discuss how this policy may be used to reduce the level of unemployment in the UK. I will go on to conclude, which policy I believe is the most effective one to use.
One policy which may be used to reduce the level of unemployment is fiscal policy. Fiscal policy involves the government changing the levels of taxation and government spending in order to influence Aggregate Demand. In order to reduce unemployment, the government may decide to spend money on building new schools and hospitals. This of course will create many jobs for builders and teacher, who recently may have been unemployed. The builders and teachers will have more disposable income to spend on goods and services from shops. Which will then increase businesses profits, so they may decide to employ more people as demand for labour is derived demand. Again, reducing unemployment. Furthermore, Government spending is a component of Aggregate Demand (AD), hence an increase in government spending will increase AD. The diagram below illustrates how the AD curve will shift to the left.
Diagram shifting AD from AD1 to AD2
Here we can see the AD curve shifts from AD to AD2. This causes the price level to increase from P1 to P2, and the Output to increase from Y1 to Y2. An increase in output can have the effect of encouraging economic growth. And in times of economic growth there are more jobs created, which then will have the effect of reducing the level of unemployment. However, by the…