Measuring Real Unemployment
Unemployment is an essential issue studied in macroeconomics. The unemployment level gives a signal as to the oval state of “how well off” or “how bad “of the current state of economy. Although the statistics are heavily relied upon by governments and state officials in order to make decisions, however there are a shortcomings in measuring its true reflection or the” real unemployment” level. Unemployment is defined by economists as a person who is actively seeking job ad is unable obtain one. Anyone who falls under this definition is considered unemployed, but there are a few sub categories and situations that should be considered. First, there are a number of people …show more content…
Today, much of that psychology is still applied; however, the question lies should it be addressed different? These category of people will not accept the going wage rate and will consequently seek alternative means in which their average propensity to consume is equal to1. For instance, in lager economies there are numerous charity foundations and government befits that are available to their disposal. In smaller economies, although the nominal benefit form government is smaller, these people will mitigate this gap by grants from family and friends from aboard. Some may also resort to live with family and relatives that may be willing to help. They are not necessarily lackadaisical, it may just be a situation in which to cost of accepting the job is too high over the benefit. A typical example could be the cost of transportation. If they cost of commuting to and from the job is equal to or more than the wage the party will not accept it. Another could be compensation for their disutility is too low. Work is considered to be a burdensome task and one will not accept a job if they believe they are not fairly compensated for their labour. Another could be since their average propensity …show more content…
They acknowledge that money is not only a medium of exchange but serves as a store of value. This intern was combated when it the idea that saving can become loan able capital for investment.
However, the classics could not solve the problem of the Great Depression in the 1030’s then a young man name John M. Keynes who identified some fallacies of their theory in his book “ The General Interest of Employment Interest and Money” .
He first identified that prices especially wages are not realistically flexible. Labours will not be willing to accept lower wages and this will cause involuntary unemployment to persist longer. Say’s law was also challenged .although he acknowledge that revenue from production creates an income, it does not happen instantaneously. Example when householders have more they spend more and when they have less they would spend less.
He recommended that government can have a vital role to mitigating the aptitude and time the economy takes to adjust during recessions and inflations. He prescribes they do so using their tool as fiscal and monetary