Economics Theories and Principles: Frictional, Structural Unemployment (Coursework Sample)

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Unemployment has been a challenge in both the developing and developed countries. Research and other initiative have been taken by the government to ensure that the situation has been curbs. However concrete solution to the same have not been realized. In order to solve the problem of unemployment it is important to know the categories of unemployment in order to find the policies and strategies that should be taken to resolve the issue. These types includes frictional unemployment, structural unemployment, cyclical unemployment among others
Frictional unemployment
This the type of unemployment comes during the transition of on job to another. This is caused by inevitable delays in time when someone is looking for a more suitable job. This is common in a free job market economy. It also refers to the period of time that one takes while searching for more new jobs. This type of unemployment is short term. The in most cases it happens due to geographical and occupation mobility. This type of unemployment in an economy is considered good as it happens as people try to shift to a more productive areas.
Structural unemployment.
Structural unemployment occurs due to luck of capacity and skills to perform a task. Every job requires specific skills. Jobs that requires technical expertise will only be done by specific people. For this reason people without the specific skills will remain jobless. It is a long term problem as the employers will not take the unskilled to perform the task.
Cyclical unemployment
This type of unemployment occurs due to the economic business cycle. The job losses are caused by downturns and also contractions cycles of a business or economy. This type of unemployment is dependent to the consumer demand. During the sessions of low demand there is loss of job as the business profit margins are very low. This type of unemployment is most dangerous as it may cause bankruptcy in an economy.
For this reason cyclical unemployment is the most dangerous type of unemployment and every economy policy makers should find out ways to avoid it.
Inflation is the persistent increase in commodity prices and it is characterized by the loss of value of money in an economy. Inflation is associated with costs that are oppressive to the economy. The economy experiencing inflation will have the following consequence; there is a possibility of reduction in international competitiveness. A country experiencing inflation will have their good being less competitive in the international market. The exchange rates therefore will be on a decline hence low input from exports. The second effect is confusion and uncertainty of the future. People may tend to hold money due to the uncertainty in the future expectation. For this reason people may fear to put investment due to fear of future losses. Consequently the economy will experience retarded economic growth. The third effect is that the economy may have booms and bust economic cycles. In most cases high inflation is followed by recession. Keeping inflation low encourages economic growth. Other effects includes fiscal drag and income redistribution. High inflation discourages business investors as persistent increase in commodity prices increases the production cost and the consequence is low profit margins.
Transfer payments are those payment that are made when no good or services have been delivered. On the other hand the gross domestic product are incomes that come from productions made in an economy. For this reason the transfer payment cannot be included in the GDP because the origin of the income is not based on production. The GDP of an economy is therefore given by Y= C + I+ G+(X-M).
Buying an Italian purse means you have increase the import. The Italian purse is made imported good and therefore the balance of payment will be altered. On the other hand when someone buys a new house the proportion of consumption increases. The house is a consumption good therefore the consumer pays for the good. When new lanes are added to interstate 40 the amount cash is spent for development purposes therefore the amount spent goes to the government expenditure component. When someone buy a groceries the cash is entered in the investment expenditure. The grocery is purposely for business therefore the business that will be there will earn some income. New washer and a drier are consumable good therefore it will lie in the consumption component.
The tax refund increases the consumer purchasing power hence the demand curve will shift to the right.
The quantity demanded will increase by (Q2-Q1). This will cause the prices of the commodities to increase to P2 thus fetch a higher profit to the investors. A price increase will attract more investors in the economy. Therefore more goods and services will be brought in the market. The improved profit margins will therefore improve the economy real wealth. This will be as a result of increased investment by the new investors who enters in the market.
According to classical theory the wages and prices of a commodity are subject to demand and supply forces. This supports the Says law which state that the supply creates its own demand in the sense that if more goods are supplied into the market the demand will go down thus affecting the supply of the commodity in question. Says law argue that prolonged unemployment may not happen in long run classical model. The adjustments in prices interest rates and wages ensures that the workers and the economic resources are fully employed. According to the classical model, wages, interest rates and commodity prices are flexible and can adjust in case of rise in aggregate demand.
The change in a...