FIXING
THE UNEMPLOYMENT
MALADY
GROUP MEMBER :
- RININTA NURRACHMI
- SUMAIYAH SALEH TAHER
- FATHIMA FAREEHA
- LIA ADELINA HARAHAP
- NOHA QAID AHMED
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INTRODUCTION Unemployment is faced by every developing economy in the 21st century.
According to the article the issue rise because of a decade’s worth of
mounting debt, low savings, surging asset prices and excess consumption.
The United States was on an unsustainable growth path for at least a
decade – probably longer – before the crisis .
Several efforts have been selected by the US government to solve the crisis,
which comprise
1. Recovery of households’ balance sheets
2. Fiscal stimulus
3. The tradable sector
Objective of the Paper
The paper will discuss about issue that arises in the US economy and the
fiscal stimulus which was conducted to restore the US growth and
employment using the Keynesian model.
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Type of Unemployment according to Keynesian :
1. Frictionally unemployed
2. Seasonally unemployed
3. Structurally unemployed
4. Cyclically unemployed
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Figure : Equilibrium in AS – AD Curve
Aggregate demand was too low because of
inadequate investment demand. Policies should
be aimed at stimulating aggregate demand in
order in the equilibrium.
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Figure :Increase in Aggregate Saving
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FISCAL POLICY IN US ECONOMY
Debt Held by the Public (net public debt),
Intra Governmental Holdings,
Total Public Debt Outstanding (gross public debt)
There are the two main ways of providing fiscal
stimulus:
Tax Cuts
Government Spending
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the U.S. debt from 1940 to 2011 w
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THE EFFECTIVENESS OF FISCAL POLICY
Figure : Increase in Government Spending
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y
r
Yo Y1 Y2 Y3
LM
ISo
IS1
IS2
IS3
Low level of employment
Full employment
Figure : The Effectiveness of Fiscal Policy
THE EFFECTIVENESS OF FISCAL POLICY w
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MULTIPLIER EFFECT
Figure : The Government Multiplier Effect
C,G,I,S,T 45°
S+T
₀
I₁+G
₁
I₀+G
₀
Y
C+I₀+G₀=E₀
C+I₁+G₁=E₁
Aggregate
Demand
Y₀ Y₁ Income
Change in Y
Change in C
Change in I
J S= I
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Figure : Tax Multiplier Effect
Y0 Y1 Income
MULTIPLIER EFFECT w
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TRADABLE SECTOR
Trade deficit of US is one of the most impotent components which contribute to the unsustainable growth of US economy.
Therefore, US need to focus on rising competitiveness in the import, export sector and they must try to stimulate the domestic economy by promoting exports and restricting imports.
For the past two decades, the net employment growth in US economy has been in non tradable sector which has no competitiveness at all.
According to Spence (2011), the tradable sector accounts in the US economy is only 30% (by value added), and the employment growth in the tradable sector is negligible. If employment growth in the non-tradable sector – dominated by government and health care – falters, the tradable sector will have to take up the slack. The problem is that it cannot, even with a depreciating currency. If exports are to grow substantially, the scope of the tradable sector must expand. The powerful growth engines of the US economy must be fixed, because competitiveness becomes the central focus of longer – term US economic policy.
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CONCLUSION
Accumulated issues in the US economy cannot be
restored within a night. High unemployment
rate, mounting public debt and deficit budget are
the complicated crisis need to be recovered to
sustain the economic growth.
Fiscal stimulus has clearly helped the crisis
however the effect was diminishing rapidly.
Fiscal stimulus is only effective during low
unemployment. The US government aims for
introducing competition in the tradable sector
which will lead to employment growth and it has
to be done with limited fiscal resources.
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THANK YOU
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