1. Reflation:- is a fiscal or monetary policy, designed to expand the country’s output and curb the
effects of deflation. Reflation policies include reducing taxes, changing the money supply and
lowering interest rates. The term reflation is also used to describe the ffirst phase of economic
recovery after a period of contraction.
UNEMPLOYMENT
(1)What is unemployment?- The number of unemployed consists of all those people in a country who
are willing and able to work but are un able to find jobs. The non availability of jobs for people able
and willing to work at the prevailing wage rate.
(2)Is there a difference between the natural rate of unemployment and the unemployment rate? The
natural rate of unemployment – is unemployment level in the economy caused by structural and
fictional forces which cannot be reduced by an increase in demand. The level of unemployment in an
economy when its labour market is in long run equilibrium.
(3)What are the implications of a rising unemployment rate to an economy? Fiscal Monetary Policies
and Subsidy Policies.
(4)What are the types of unemployment? Voluntary unemployment:- is a situation in which workers
refuse to work and accept a cut in real wages, so that the prevailing real wage is above market
clearing level. Involuntary unemployment:-is a situation in which a worker is unable to find a job at
going wage rate. Natural unemployment:- is the level of unemployment in an economy when the
labour market is in long run equilibrium. Search unemployment:- refers to people who are
temporarily between jobs. It persists because of imperfect information in the labour market.
Structural unemployment:- refers to people who have lost their jobs because of changes in
structure of demand or technological developments, such as automation. Seasonal unemployment:-
refers to people who lose their jobs because of the fall in the demand of labour at certain times of the
year. Demand deficient unemployment:- unemployment caused by a general deficiency of aggregate
demand. Excessive real wage unemployment:- is unemployment that results from the real wage
being above the market clearing level because of the restrictive practices in the labour market.
Residual unemployment:- are people who are unemployed due to suffering from mental andor
physical disabilities which limits the number of job opportunities available to them. Technological
unemployment:- is the loss of jobs caused by technological change, such as the introduction of
machinery that makes some labour skills odsolete.
(5)Explain the following events; economic recession and economics depression. Depression is a
prolonged and deep recession. And a Recession is a period which aggregate output decline, two
consecutive quarters of decrease output signals a recession.
(6)What are the implications of a recession to an economy? Implications of a recession in an economy
is The Discretionary Fiscal Policy, Automatic Stabilizers, Corporate Profits, Progressive Income
Taxes ans The Unemployment Insurance (UI) Program.