Keynesian economics

Keynesian economics

The dynamics of the U.S employments indices reveal strong indicators in the macroeconomic factors. Unemployment in the U.S is a critical macroeconomic issue. The Federal Reserve established a target of six point five per cent as the unemployment rate that should trigger high-interest rates. However, the unemployment rate of almost five per cent the strength of the U.S economy. The Federal Reserve metrics on unemployment, inflation and economic performance establishes the mechanism that measures the unemployment rate by dividing the number of unemployed persons by the number of people in the labour force. The principles of Keynesian economics recommends the need for a natural rate of unemployment in any economy because of the availability of skilled labour as compared to the available opportunities under the existing economic solution. The basis of Keynesian economics focus on the natural dimension whereby economies across the world experience higher rates of unemployment during the recession.

Literature Review

According to Debt.org (n.d), the U.S Bureau of Statistics shows that the monthly unemployment rate is among the key indicators of the U.S economy. The unemployment rate provides the basis for the economic policies, highlights the strength of the economy and establishes the macroeconomic approach to solving the problem. Statistics from the U.S Bureau of Statistics shows a recent fluctuating trend in the unemployment rate from the lowest 4.7 per cent in 2008 to the highest 10.1 per cent in 2009 (Krulick 2020). The statistics indicate the cause of unemployment citing the 2008-09 case to have originated from the Wall Street collapse, the burst of the U.S housing bubble and the general recession in the economy. The widespread consequences of unemployment rate on the overall economy are high with the U.S losing critical drivers of economic growth such as consumer spending. Therefore, long term unemployment rates lead to financial, emotional and psychological destruction of the factors of labour.

Baglian, Fugazza and Nicodano (2019) emphasize on the causes of unemployment by citing economic meltdown and other factors in the recession. The lifecycle model of saving and portfolio choice with unemployment helps in understanding the possible percentage reduction in the expected earning as a result of long term unemployment. However, Petrosky-Nadeau and Valletta (2019) cite inflation pressures and labour market dynamics as factors that cause an increase in the unemployment rate. For the last 50 years, the U.S unemployment rate was declining to a low of 4 per cent in 2018 and 3.6 per cent in 2019. Previously, such a sustained low rate of unemployment indicated the rise in price inflation and wage rates. From the macroeconomic perspective, the relationship between rising inflation and the low rate of unemployment raise the possibility of understanding historical monetary policy. As a result, the tradeoff between price stability and labour market condition characterize a series of macroeconomic dynamics at the national level of unemployment. Changes in labour market conditions reduced since 1969 lowing the unemployment rate with the rising inflation. Therefore, the policy tradeoff is a macroeconomic variable that the U.S use to shift the metrics of maximum unemployment.

The U.S has recorded the most significant economic expansion for eleven years in a row (Baglian, Fugazza and Nicodano 2019). The result of this expansion is continued business performance leading to the high number of workers obtaining employment opportunities. The growth in the economy allows for different factors in the economy to meet the rising demand for the goods and services produced. With job opportunities reaching a new high, the record for the unemployed people has reduced drastically. The macroeconomic principle that emanates from this scenario indicates the relationship between instances when the unemployment rate fall and the macroeconomic policies that strengthen the labour market, allowing workers to negotiate for higher wages and better working conditions. The better labour markets push up wages as well as other costs of production, reducing prince inflation and general employment rate. Recent studies have found the macro effect of unemployment on the economy (Chodorow-Reich, and Karabarbounis 2018). Therefore, the increase in employment opportunities indicates the improved macroeconomic situation and the changes in the labour market. The federal law associated the employment benefit to state-level macroeconomic conditions to inform a policy rule generating the rise in the employment rate. Identifying the macro effect on the unemployment insurance benefits extension is a weak criterion for relating macroeconomic outcomes and increased in unemployment. The U.S state economic conditions avoid the benefits extension function and instead focuses on enhancing the prince inflation policies to allow for competitive employment opportunities.

The macroeconomic effect on unemployment dynamics relies upon uncertainty shocks. The shocks affect the business cycle, which exerts its contribution to inflation and policy rate, and overall inflation (Caggiano and Castelnuovo 2015).

However, the U.S economy has experienced average seasonal unemployment. The short term nature of unemployment relates to the short-term expansionary impacts on economic performance. The changes in the political environment, the occurrences of natural calamities and the fluctuation of the interest rates and foreign exchanges cause the seasonal unemployment rate. The U.S government has put in place measures to address such conditions of unemployment because it is forecastable. Therefore, the Federal Reserve has a budget and statutory allocation for compensating workers in advance for the unemployment which was encountered during off-season (Krulick 2020). However, seasonal unemployment complicates the translation of unemployment data. Within the macroeconomic indicators, seasonal elements increase the unemployment rate in specific months of the year and decelerate it in others, even when general economic conditions remain unchanged.

The U.S unemployment rate is low because the Federal Reserve has initiated the current development of structural changes in the economy (Shimer 1999). The U.S labour force has changed significantly over the past two decades due to the factors of ageing baby boomers generation. Although the teen unemployment rate is higher in some states than the aggregate unemployment rate, measuring unemployment is the main strategic strength the U.S economy relies on. Understanding the rate of unemployment correlates with the U.S Labor Department’s efforts to underline various causes of unemployment as well as the attempts by the federal government to control unemployment. Generally, the causes of unemployment depend on political and economic ideologies.

The structural unemployment occurs where there is a mismatch in the industrial composition and the demographics of the nation. There are cases where employees identify temporary transition for workers looking for given opportunities for better pay in relation to their skills (Krulick 2020). Irrespective of the causes of unemployment, the U.S government employs job-creating strategies by changing its monetary policy to the existing fiscal policy. In the monetary policy, the Federal Reserve controls the supply of money and lowers the interest rate attracting more business and banks to borrow money. The impact of this monetary policy is to stimulate the economic expansion program that affects hiring in the labor force (Krulick 2020). In addition, the Federal Reserve increases the availability of money in circulation by selling treasury bills and bonds. As money enters into the economy, the forces of commerce expire triggering the need for a more workforce.

In fiscal policy, the Federal Reserve relies upon various strategies to address the increasing level of unemployment. Moreover, the U.S Federal Reserve uses an expansionary demand management policy to increase the actual level of national income, employment and output (Mitman and Rabinovich, 2019). In particular, public programs and tax cut comes under a form of demand management referred to as fiscal policy. Unemployment rates and GDP growths tend to be negatively correlated, and hence they tend not to offer conflicting symbols. However, with any statistics, inaccuracies occur. Unemployment and Per capita real GDP could only provide an estimate for the country’s economic performance. In the case of accuracy, fiscal policies are still inadequate to volunteer a complete assignment of a country’s economic performance. Other economic indicators such as income distribution, the balance of payment and fiscal balance should be taken into consideration.

According to Shimer (1999), youth unemployment occurs because of the changes in education and age composition. The most considerable change in aggregate employment shows an expansionary model that illustrates the conditions under which the aggregate rate of unemployment. The premise of the model explains how young workers do not find it hard to obtain employment opportunities but have a challenge maintaining the job. The indicators represent the macroeconomic explanation that shows the changes in the median unemployment duration against the increasing functions of age. The fact that older workers in the U.S stay in their employment positions for longer is due to factors such as employment insurance. The macroeconomic situation reduces the youth unemployment duration by movements of workers within the workforce. However, the U.S job addition shows the growth of the economy. The recovery in consumer expenditure and housing remain stable with the increase in the employment rate. As a result, the decline in youth unemployment shows an increase in social factors such as creativity that create additional growth opportunities for the economy.

In 2014, the Federal Reserve faced a challenge in addressing unemployment. However, the stimulant policy creates an important factor in the expansion of the economy to reduce the rate of unemployment while at the same time achieving two per cent inflation target (Krulick, 2020). There is a direct relationship between unemployment and inflation. If inflation increases, then the Federal Reserve will have to strengthen its fiscal and monetary policies even if it achieves a low unemployment rate. However, if the inflation keeps reducing, the Federal Reserve will have to buy more securities or commit to a more extended period of zero short term interest rates (Caggiano and Castelnuovo, 2015). If the fiscal expansionary policies fail, deflation will heighten real interest rates and lead to low economic growth.

Conclusion and Summary

In the U.S, there is a correlation between unemployment and high prices of gas and consumer goods. The consumer spending indicate the macroeconomic challenges facing the U.S. As a result, the unemployment rate is still far from the five per cent rate mark, which is regarded as an indicator of a strong economy.

Since 2008, the actions of the Federal Reserve have impacted on stabilizing economic performance and reduced the unemployment rate. Since the onset of the global financial crisis, the Federal Reserve has played an active role in addressing the problem of unemployment through a series of fiscal and monetary policies. For instance, the Federal Reserve introduced expansionary economic policies and also printed off trillions of dollars to stabilize the circulation of money in the economy. However, the extra dollars injected into the economy have not spurred economic growth but shrank the buying power of each dollar. Although unemployment in the U.S is at an all-time low in the last 50 years, the high unemployment rate is an indicator of a weak economy. According to macroeconomic principles of inflation, high-interest rates and the dynamics of high consumer spending, unemployment is a representation of the loss of output since the actual output is below its level of potential. Moreover, unemployment influences the cost of living as the unemployed encounter direct financial costs in terms of their loss in earnings.

The duration weighted measure of unemployment indicates the loopholes in the general economy. However, past recessions have increased the fractions of the unemployed population. Improving data on unemployment involves matching efficiency and estimating the rate at which people are serving for employment opportunities. The effects on the unemployment insurance on the unemployment summarizes the challenges of measuring unemployment rate in the U.S. However, the Federal Reserve, in collaboration with the U.S Department of labour engages monetary policies and improving models of employment. The representative agent framework assumes that there are many aspects of the macroeconomy that describe the causes of unemployment and evaluates the effectiveness of the Federal Reserve in responding to unemployment through various macroeconomic policies.