Question

3 Governments may use fiscal policy to reduce unemployment and so to reduce the disadvantages that unemployment can impose on an economy. Both fiscal policy and monetary policy seek to influence total demand. a Define fiscal policy. [2] bExplain two causes of unemployment [4] c Analyse the disadvantages of unemployment to an economy. [6] TIP You may wish to highlight or underline disadvantages in the question to remind you not to write about advantages. You might also want to highlight to an economy' so that you do not concentrate on the unemployed for example. d Discuss whether or not a rise in total demand will increase employment. [8]

Answer 1

1. Fiscal policy is a part of economic policy of the government which is related to the government income and expenditures/

According to Arthur Smithies." Fiscal policy is a policy under which government uses its expenditures and revenue programs to produce desirable effects and indesirable effects on the national income, production and employment.

Fiscal policy involves in designing the : 1. Tax structure

2. Determining tax revenue .

3. Handling public expenditure.

2. Unemployment occurs when a person who is actively searching for employment is unable to find work. There are various reasons for unemployment which are as follows:

a. Caste system: In India or in many places , caste system is strongly prevalent. The work is alotted to persons according to their caste's.This hinder the deserving candidate in getting job, and as a result of it unemployment prevails.

b. Increase in Population: The biggest problem of unemployment is increased population. The number of people's are in excess as compared to jobs, as a result everyone didn't get job and remains umemployed.

3. Disadvantages of Unemployment to an economy:

- Due to unemployment there is a instability in the political system. Unemployed persons engaged themselves in destructive activities. They consider the government worthless. Economic development becomes difficult under the conditions of unemployment.

-Many social evils like dishonesty, gambling , immorality etc, arises due to unemployment. It endangers law and order situation of the country. It cause social disruption to the society.

-Unemployment causes poverty. Burden of debt increases. Economic problems increase.

-Due to unemployment human resources are not properly used for constructive works and the economic growth of the country will decline.

- The unemployed are also unable to purchase more, so it will contribute to lower spending of income and lower outputs. A rise in unemployment has a negative multiplier effect.

-Unemployment is a loss of valuable productive resources to the economy. The impact of job loss in rural and regional areas flows through the local community damaging businesses as family expenditure is reduced.

4. Yes, when total demand increases employment also rises, because when aggregate demand increases it means people have large money to spend and high purchasing power. So the supply of products also increases it means production increases. As a result producers want more employees for doing their work. So, people gets job and employment increases.

- When aggregate demand increases , there will be an upward movement in philips curve. As aggregate demand increases , real GDP and price level increases, which lowers the unemployment rate .