Unemployment causes definition govt policies towards causes

Cyclical unemployment: unemployment resulting from low ● the government attempts

demand for goods and services in to manage the economy so
the economy during a period of slow as to avoid a substantial
swings in the business
economic growth or a recession. cycle which lead eventually
to recession.
● this includes subjective of
keeping inflation low if
inflation Rises sharply the
government might be
forced to use anti
inflationary measures.
● the government might also
aim to maintain a
competitive rate of
exchange so that oversees
demands for home
produced good does not
fall leading to cyclical
unemployment

Structural unemployment unemployment caused by the ● not to prevent economic

decline in important Industries changes that lead to
leading to significant job losses in structural unemployment
one sector of industry this would be standing
against economic change
and progress.
● provide education and
training programs for
workers who do not have
the required skills
● the UK's government's new
deal program has offered
training courses to all
long-term unemployed
refusal to take upt hese
offers has led to state
benefits being reduced

Frictional unemployment unemployment resulting from ● the efficiency of the Labour

workers losing or leaving jobs and market can be improved
taking a substantial period of time to and frictional
find alternative employment unemployment reduced by
the provision of information
about job opportunities.
● job centres or employment
agencies are given this
responsibility
● economics argue that the
government reduce
 unemployment benefits for
those people were slow to
find alternative
employment.

Costs of unemployment:
● the economy could be producing more goods and services which would then be available for consumption
● the cost of Supporting unemployed workers in their family is substantial and is paid for out of general
taxation
● social problems arise
● reduces demand for goods and services by reducing the incomes of those looking for work
● loss of income and lower living standards
● longer the period of unemployment the more difficult it is to find work

Balance of payments:
Large deficit on its balance of payments would result into:
● Depreciation in the value of its currency’s exchange rate
● A decline in the country’s reserves of foreign currency
● An unwillingness of foreign investors to put money into the economy
Balance of payments definition: this account records the value of trade in goods and services between one country
and the rest of the world. A deficit means that the value of goods and services imported exceed the value of goods
and services exported.
Exchange rates: the price of one currency in terms of another.
● the exchange rate depreciation make importing and exporting to risky
● the government takes corrective actions by limiting foreign exchange transactions and putting substantial
controls on imports.
Exchange rate depreciation:
a fall in the external value of a currency as measured by its exchange rate against other currencies.
Exchange rate appreciation:
a rise in the external value of a currency as measured by its exchange rate against other currencies.
Factors that determine the demand for a currency:
● Foreign buyers of goods and services.
● foreign tourists spending money in the country.
● foreign investors.
factors that determine the supply of a currency:
● Domestic businesses buying foreign imports.
● Domestic population travelling abroad.
● Domestic investors abroad.
The domestic firms that lose from an appreciation are:
1. Exporters of goods and services to foreign markets which do not include just manufactured goods but also
own country holiday resorts which will experience a fall in demand from overseas tours because of the
higher cost of products in terms of the foreign currency.
2. businesses that sell goods and services to the domestic market and have foreign competitors. appreciation
makes imports cheaper, it will make domestic procedures less competitive in their own market.
The domestic businesses that gain from a depreciation are:
● Home based exporters who can now reduce their prices in overseas markets this should increase the value
of their exports and lead to an expansion of the business.
● businesses that sell in the domestic markets will experience less price competition from importers.
The home based businesses that are likely to lose from a depreciation are:
 ● Manufacturers who depend heavily on imported supplies of materials these costs will rise and will reduce
competitiveness.
● Retailers that purchase foreign supplies especially if there are closed domestic substitute the price of these
imports will write in the retailers may be forced to find the mystic suppliers of similar quality goods.
Non price factors:
● These factors determine the success of the business :
● product design and innovation: innovative product can be sold at premium prices.
● quality of construction and reliability: encourages consumer interests.
● effective promotion and extensive distribution.
● after-sales services which include extended guarantee..
● Investment and train staff and modern technology: this would allow flexibility of production to meet frequent
changes in consumer tastes. higher labour productivity can overcome drop drawbacks caused by higher
costs of other resources.
macro economic policies:
● Policies designed to impact on the whole economy.
● mainly operate by influencing the level of total or aggregate demand in the economy.
● level of demand works through to determine the value of output of goods and services and the level of
employment.
fiscal policy:
● Concerned with decisions about government expenditure text rates and government borrowing.
● the finance minister announces the spending and tax plans of the government for the coming year and the
difference between these two totals is called either the budget deficit or the budget surplus .
● government budget deficit: the value of government spending exceeds revenue from taxation.
● Government budget surplus: taxation revenue exceeds the value of government spending.
Monetary Policy:
1. It is concerned with decisions about the rate of interest and the supply of money in the economy.
2. if inflation is low and is forecast to remain below government targets, than the Central Bank may decide to
reduce interest rates.
3. using higher interest rates will have an impact on businesses in three main ways:
○ Increases interest costs and reduces profits for businesses that have very high debts.
○ reduces consumer borrowing and this reduces demand for goods bought on credit.
○ it tends to lead to an appreciation of the country's exchange rate.

Type of policy measures to slow down economic likely impact on businesses

growth and reduce inflation

fiscal policy raise Direct tax rates ● consumers disposable

decisions about government raise indirect tax rates income small and the
spending taxes and borrowing. reduce government spending demand for products will
fall.
● the precise impact will
depend on income
elasticities.
● if corporation tax rates are
increased and businesses
retained earnings will
decline.
● this will reduce funds
available for business
investments.
● the retail price of the
goods affected will
increase the impact on
 demand will depend on
price elasticities.
● Businesses providing
goods and services directly
to the government or risk
experiencing a reduction in
demand.
● defence suppliers and
construction companies
could be hit for example.

monetary Policy the most likely policy measure will ● Highly geared businesses
decisions about interest rates the be an increase in interest rates will experience increasing
supply of money. interest payments that may
endanger their cash flows.
● this is his will be less likely
to borrow to finance further
Investments as the cost of
loans may exceed the
expected Returns.
● consumers will be affected
in two ways:
● Less likely to buy goods on
credit as the interest rates
will be higher.
● demand for houses will fall
as mortgages are the
biggest loan most
consumers take out. the
most catches will take a
higher proportion of
income which will have a
direct impact on consumer
demand.
● higher domestic interest
rates may encourage
overseas capital to flow
into the country. lead to an
appreciation of the
currency exchange rate.
implications for the
competitiveness of
businesses.

Drawbacks of floating rates:

● Fluctuating private prices of imported raw materials and components.
● fluctuation in export prices in overseas competitiveness.
● uncertainty over profits to be earned from trading abroad or from investing abroad.
Having different exchange rates adds considerably to the cast of Friends trading overseas in three main ways:
● Currencies have to be converted into the domestic currency. this involves a commission cost to the back.
● different price list have to be printed and frequently updated for each separate country.
● attempts to take out the risk of dealing in different currencies by using currency contracts and hedging can
be expensive as charges have to be paid to the specialist institutions involved.
advantages of not joining a common currency:
● the Central Bank could keep its status as their interests setting authority.
● replacing the currency with a common currency will eventually lead to comment text policies throughout the
currencies on which you reduce the Independence of each government will control its own tax rates.
 ● allowing exchange rates to float means that the government and the Central Bank can allow the exchange
rate of the pound to find its own level and will not use economic policies to keep it at one level or Another.
● conversion costs from one currency to the common currency could be substantial in terms of to our pricing
and the changeover of notes and tills.
government policies and business competitiveness:
● Low rate of income tax: if workers and managers are forced to pay high rates of tax on any increasing
income then they could lose motivation to work hard and to gain promotion.
● high rates of income tax will discourage entrepreneurs from setting up new businesses as they will consider
that their boards after text will not justify the risks involved. so reducing rates of income tax is a supply side
policy.
● low rate of corporation tax: a text on the operating profits of limited companies after interest. high rates of
this tax will leave for your funds for investment in businesses and will discourage and new investments and
new projects. the lack of investment will reduce the competitiveness of businesses.
● increasing labour market flexibility and labour productivity: most governments want to use policies that will
increase their skills and efficiency of the country's workforce and encourage workers to demonstrate a
strong incentive to work.
policies used by government to achieve these aims:
● Subsidies for worker training programs and increasing state provision in colleges for skills training.
● increased funding of Higher Education to allow a higher proportion of future workers to enter employment
with degrees and other High Level qualifications.
● lower rates of income tax to encourage workers to take the risk of setting up their own business centre in
cards work incentives.
● encouraging immigration of skilled workers who can fill job vacancies in help to increase total industrial
output.
● Restricting welfare benefits to those in genuine need so that healthy and potentially productive workers are
not encouraged to stay home and live off state.
further economic issues:
1. Government intervention in industry:
○ Subsidies to help keep down prices.
○ subsidies to stop a loss making business failing.
○ grants to locate to particular regions.
○ Financial support for consumers to buy products.
2. Market failure: when markets fail to achieve the most efficient allocation of resources and there is under or
over production of certain goods or services.
3. external costs: activities that are not paid for by the producer or consumer but the rest of society.
4. labour training: many firms will not make sufficient provision for training this means that the country has a
shortage of skilled workers and professional staff which will reduce economic growth.
5. Monopoly produces: market is dominated by one firm and Monopoly is said to exist. businesses will be
interested in making profit as high as possible. the easiest way of achieving this will be to restrict output and
raise prices. monopolist is able to prevent competitors from entering the market.
elasticity of demand:
● Measures the responsiveness of demand for a product after change in consumer income.
● percentage change in demand for a product divided by the percentage change in consumer income.
● income elasticity can be described for three classes of goods.
● normal goods: the income elasticity for normal goods is positive and between 0 and 1 this means that when
consumer incomes Rises the demand for these goods may well also increased by a smaller proportion.
tend to be essential or necessity goods which will be bought in roughly the same quantities by consumers
no matter what is their incomes. Producers of normal goods will not experience sharp increases in demand
when incomes are rising during economic growth but neither were they demand of them for greatly when
consumer incomes decline.
 ● luxury goods: the income elasticity of luxury goods is positive and greater than 1. this means that when
consumer incomes arises that the demand for these goods will rise by an even greater proportion. when
they're disposable income Rises they are able to spend easy quizzes on more unusual no necessity items.
these will be expensive but preferred alternative goods which cannot be afforded when incomes are low.
● inferior goods: the income elasticity for these products is negative. this this means that demand for these
products will decline following an increase in consumer income but will rise when consumer incomes are
reduced. such products tend to have preferred but more expensive substitutes. examples include second
hand goods, economy own brand food products come up or cuts of meat, weekend breaks in own country
rather than long holidays abroad.

Examples of market failure stakeholder groups most affected corrective policy action

external costs ● Consumers: they may be ● Businesses may reduce

pollution from manufacturing forced to buy external eighties if bad
processes environmentally damaging publicity Leads to lasting
goods damage to reputation and
● government and local sales.
authorities will be forced to ● government can impose
take the issue seriously by fines on polluting
waters and pressure businesses or impose strict
group. limits on pollution levels.
● workers who may be
concerned about their own
health and job security of
bad publicity leads to a
decline in sales.

labour training ● Consumers: car city of ● Industry-wide

inadequate provision for trained qualified staff may reduce organisations could Levi
skilled staff consumer services or lead members to pay for
to higher priced as output industry-wide training
is restricted. which would be beneficial
● government will suffer to all firms in the industry.
from the lack of skilled staff ● government could pay for
which will limit the more training courses at
international colleges funded from
competitiveness of general taxation.
industry.
● shareholders will face the
loss of potential profits as
output will be below
potential.

Monopoly producers ● Consumers will be ● Consumers can purchase

restrict output of goods to keep concerned about lack of from other suppliers. the
prices high choice restricted supplies increasing use of the
in high prices. maybe a internet for consumer
reluctance by monopolies goods is allowing
to develop new goods as consumers to choose from
there is limited competition. a wide range of suppliers.
● government will suffer breaking down some
from High prices and lack Monopoly situations.
of competitiveness of ● government can use
important Industries. competition policies.
government can also
investigate and act against
Monopoly practices.
privatisation has led to the
breakup of many stat1
monopolies.