Norway's Unemployment: Article Analysis

his article is on Norway’s unemployment rate and details how its recent unemployment level is the highest it has been in more than a decade due to rapidly falling oil prices. In 2014, the price of oil was above $100 a barrel, however has now plunged to $40 a barrel. As a result, 30,000 workers from petroleum production companies have been fired due to the decreased aggregate demand and because of this, the unemployment rate rose to 4.8% in January 2016 from 4.6% the previous month. Unemployment is defined as the rate of working age people looking for a job, but are not employed and seeing as Norway’s unemployment is mainly caused by the decreased aggregate demand for its oil, then the type of unemployment that Norway faces is cyclical or demand-deficient …show more content…
This policy is already in use by Norway as it is stated in the article that “the central bank cut its benchmark interest rate to a record low” and has been “cutting rates since December 2014” (Bloomberg, 2016). The central bank does this by increasing the supply of money which leads to a fall in the rate of interest. Consumer spending and business investment is financed by the borrowing of money, and a decreased interest rate would mean that consumption and investment can be financed at a lower cost, leading to greater amounts of spending. Therefore, this increases aggregate demand and the aggregate demand curve performs a rightward shift from (ADL1) back to (ADL). This shifts the equilibrium from (a) to (b) and as a result, the number of workers shifts from (Q1) back to (Qe), bringing the economy back to its natural state of …show more content…
This also has the effect of increasing aggregate demand and price however, this process is not independent from the government and may be motivated by political pressures unrelated to fiscal policy. Monetary policy on the other hand, is independent from government and the central bank is able to make long-term decisions that are best for the economy unlike fiscal policy which can be changed through short-term political purposes such as an upcoming election. Additionally, monetary policy is also faster to implement relative to fiscal policy as it does not pass through political processes and has the ability to adjust interest rates incrementally, with more accuracy. However, both policies are subject to time lags where there is delay in the time it takes to recognise the problem, and the time for the policy to take effect which can extend to several months and by that time, “economic conditions may have changed so that the policy undertaken is no longer appropriate” (Tragakes,