How does level of aggregate demand affect level of unemployment

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To what extent can government attempts to influence the level of aggregate demand affect the level of unemployment

The government can attempt to influence the level of Aggregate demand through Fiscal policy and Monetary policy. If unemployment is relatively high then either interest rates can be lowered to expand demand (Monetary Policy) or, alternatively, the government could lower taxes and boost government spending (Fiscal policy). These measures should expand demand and lead to a fall in unemployment but the overall impact of both policies can be quiet different.

Unemployment can be caused by both demand side and supply side factors. On the demand side unemployment is attributable to Demand Deficient Unemployment or Cyclical Unemployment. Here workers are unemployed simply because there is insufficient demand to provide them jobs. Clearly attempts by government to boost demand by either policy will lower this type of unemployment. However, supply side unemployment needs careful consideration. Supply side has several different causes such as frictional, structural and technological or real wage unemployment.

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        Frictional is basically workers moving between jobs and is sometimes referred to as ‘the oil that lubricates the labour market’. Although some economists may argue the fact generally frictional unemployment is unavoidable in a market economy. Structural is mismatch between the skills demanded by employers and the skills, if any, possessed by the unemployed. Subdivisions of structural include seasonal, regional and age unemployment.

        Technological is where machines replace ever more expensive workers. The question is to what extent can demand management measures affect supply side unemployment.

        Lowering interest rates through monetary expansion will all probability have only minimal effect. In ...

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I don't think this essay has the right structure here. The paragraphs should be analysing different policies to increase aggregate demand, and then showing why it will affect each unemployment type differently. This would've been more focused on the question, rather than going through each type separately. I like the writing style here, as it makes for a convincing argument. Sentences are concise, meaning there are less irrelevant bits! Spelling, punctuation and grammar are strong.

The analysis in this essay is sound. I liked how there was awareness that fiscal policies can reduce unemployment, only if targeted. However, the foundations of analysis aren't there due to the lack of a diagram! There needs to be an aggregate supply and demand diagram showing the basic principle of an increase in aggregate demand increasing real GDP and thus reducing unemployment. In my experience, evaluative points such as "the spending may take time to work" will be redundant if the analysis isn't there! The essay tends to assert knowledge rather than fully explain it. For example "cuts in national tax rates and national interest rates will stimulate demand" is a great chance to explain the mechanism. Making a clear progression from a cut in interest rate, exploring each step, to a reduction in unemployment would be a great way to get the analysis marks. For evaluation, there needed to be some discussion of the size of the policy and as mentioned earlier, the most prominent type of unemployment in the economy.

This essay responds well to the question, but there is plenty of room for improvement. I would've liked to have seen the extent really questioned here. If I were doing this essay, I would've explored the fact that aggregate demand is only a solution to cyclical unemployment, and structural or frictional unemployment will be unaffected. This would've allowed some discussion if the effectiveness depending upon the type of unemployment, along with other factors such as the size and significance of government policies.