Feb 03 2009

What will become of the Chinese worker?

FT.com / China / Economy & Trade – China’s 20m unemployed raise risk of unrest

The days of full-employment in China appear to be over. For decades under communism, the unemployment rate in China stood at an official level of 0%. Of course, being guaranteed work by a state-owned farm or steel factory didn’t exactly mean that all adult Chinese were “working”, rather that they were “employed”. The “iron rice bowl” of communism disappeared in the decades following Mao’s death during the period of “reform and opening” begun under Deng Xiaoping in 1979.

Upon its opening to the world markets, China embarked on three decades of transition from command to market economic principles, characterized by near double digit growth. The demand for workers in its export sector, centered mostly in the Eastern cities from Shenzhen in the south to Shanghai and Beijing in the north, led to the largest rural to urban migration in human history, as nearly 300 million Chinese left the countryside to seek employment in the country’s massive export sector.

Today, the very engine of China’s growth is sputtering to a halt. The demand for Chinese exports is falling as unemployment rises and incomes fall among its trading partners in Asia and the West. Subsequently, the flow of labor from the countryside to the city has reversed, and for the first time in its long history, China is experiencing urban to rural migration:

More than 20m rural migrant workers in China have lost their jobs and returned home as a result of the global economic crisis according to government figures, raising the spectre of widespread unrest in the authoritarian country.

By the start of the Chinese New Year Spring Festival on 25 January, 15.3 per cent of China’s 130m migrant workers had lost their jobs and returned from manufacturing centres in the south and east of the country to their home villages or towns, according to Chen Xiwen, Director of the Office of Central Rural Work Leading Group, who was quoting a survey from the Ministry of Agriculture.

What does the new demographic trend mean for the world’s most populous nation? Bad news, most likely. The hope of work in the city dwindles with demand for Chinese products, but the agricultural sector, which is the main source of employment in the countryside, shows little promise of employment for the millions returning home.

China’s farming industry has become less, not more, labor intensive over the decades since “reform and opening”. The acquisition of capital has supplanted the need for human labor in rural farming, which is one of the “push factors” that led to the massive internal migrations to cities in the first place. The “pull factor” leading the masses to the coastal metropolises, of course, was employment in a factory producing goods to be exported to foreign markets.

Today China’s workers find themselves in the worst possible situation. There is now a “push factor” of 15-20% unemployment, combined with the high cost of living and the struggle of living as an outside in a big city creating an incentive for Chinese workers to return to their familial homes in the countryside. But once they’ve returned home, they find the same lack of opportunity that caused them to leave in the first place. Urban unemployment may shrink as a result of the reverse migration of workers, but rural unemployment will rise.

For the first time in decades, China is faced with a problem that only a year ago (when growth reached 11%!) most would have thought it unlikely to ever face: catastrophic unemployment. Economic theory would suggest, therefore, that China is facing a situation where falling demand for its output has led to rising unemployment due to the downwardly inflexible nature of workers’ wages. According to the Keynesian AD/AS model above, if demand for Chinese output is not restored on its own (which seems unlikely as the West enters deep recession), then the government must take an active approach to stimulating demand through expansionary fiscal and monetary policies.

Keynesian theory, formulated during the Great Depression of the 1930′s, says that in times of recession, spending in the economy is unlikely to increase on its own due to the huge increases in unemployment and corresponding lack in consumer and investor confidence. An active role of government, therefore, is needed to supplant the fall in private spending, and create new income, spending, and economic growth.

In contrast to this “demand-side” theory of macroeconomics, the neo-classical economist would argue that China’s government would do best by letting the economy “self-correct” in times of economic slowdowns. The graph below shows that as demand for China’s output falls in the short-run, unemployment will rise and the price level will fall as firms find it hard to sell their output. Because millions are out of work, and because prices are lower, labor will be willing to accept lower wages, encouraging firms to increase their employment of labor, shifting aggregate supply outward and ultimately restoring full-employment at a new, lower price level than before the downturn began. This classical laissez faire theory of “self-correction” has by most account been proven FALSE, as most major recessions, most notably the Great Depression itself, were ended only after massive intervention by the national government.

The most promising solution to the looming social and economic nightmare it faces is for the Chinese government to push forward massive fiscal stimulus plans aimed at putting the tens of millions recently jobless back to work. This may sound like a return to communism at first, but government money can be spent to create jobs in private enterprise, producing goods, services, and infrastructure that leads to real long-run economic growth fueled by domestic, not foreign, demand for Chinese output.

For too long China has depended on demand from the rest of the world to grow its economy. Faced with the largest economic crisis of the modern era, the Chinese Communist Party should take it upon itself to reduce the nation’s dependency on foreign demand, stimulate growth through new public spending on infrastructure, education, health care and social security for the hundreds of millions of Chinese who are left to fend for themselves once they’ve reached retirement age. Meaningful fiscal stimulus aimed at improving the lives of the common citizen, of whom so many have been adversely affected by China’s over-dependence on export-oriented growth, will may be the best response to the most dire social and economic turmoil the country has faced since the end of the Mao era over 30 years ago.

Discussion questions:

  1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
  2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
  3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author


270 responses so far

270 Responses to “What will become of the Chinese worker?”

  1. Akhilesh Dakwaleon 04 Mar 2009 at 10:37 am

    http://welkerswikinomics.com/blog/2009/02/03/what
    /#respond

    If most of its major trading partners are in a recession, China is bound to have a problem. Aggregate demand will shift to the left. Unemployment should definitely rise as well. If they can manage to employ several hundreds of thousands of people and produce only goods for domestic sales, they will be able to survive through the recessions with little to no damage. Hiring all those people for only domestic goods could prove to be a difficult task. I believe their government should not interfere and let the economy repair itself as in the laissez faire theory. Contrary to my belief, evidence shows that major government interference was necessary to rebuild the economy in every major crisis, such as the Great Depression 1. I believe if all the countries enter a recession, they will all start prospering at the same time. The cost of living will be lowered in every country; the new level would be lower than what it was when other countries were doing well, but the people will be used to the current situation, and therefore everyone will begin consuming. This will cause economies to start growing again. They will grow to a certain level and this whole process will repeat again.

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  2. Akhilesh Dakwaleon 09 Mar 2009 at 3:43 am

    I forgot to delete the 1 after Great Depression. I deleted a sentence in which I mentioned WW1, but I guess I missed the 1 by accident.

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  3. John Lyons-Harrisonon 18 Nov 2009 at 10:28 pm

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    1. China's most worrying economic problem is unemployment, which affects the demand for China's exports most.

    2. The economic costs of unemployment are lower GDP, loss of output into the economy, loss of tax revenue, and loss of profits. Social costs are lower wages, less chance of getting another job, lower living standards, and more crime. It's important that the government try to prevent high unemployment because none of these effects are good for the economy or society.

    3. Keynesian theory says that the economy is unable to recover by itself and that the government should intervene and help stimulate the economy and reduce unemployment, while the Classical model says that the economy needs to self-correct in times of economic unrest and employment will rise if given time.

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  4. John Lyons-Harrisonon 18 Nov 2009 at 10:39 pm

    Akhilesh Dakwaleon-

    If the economy can't recover by itself in the international market, why would it do any better in the domestic market? If many of these unemployed workers start making products that will never leave te country, supply will skyrocket and demand will go down just as sharply. Also, this whole process will not automatically repeat itself. If the economy is carefully maintained, it isn't unreasonable to say that while the economy will have its ups and downs, a major unemployment spike like the current one can be prevented.

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  5. jiyoon.ecslb.f09on 19 Nov 2009 at 5:16 am

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution?

    Which of these does falling demand for China’s exports affect most?

    – China’s most concern of economic problem is the unemployment which seems to affect the demand influencing China’s exports affect the most; and this will lead the aggregate demand will shift to left.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    – Social costs are known as more low wages, which is less chance of getting another job, as well as lower living standards and probably more felony. The economic costs of unemployment are lower GDP which leads loss of output into the economy, loss of profits and as well as loss of tax revenue. Thus, it is important for a government to combat it because none of these effects are good for the society or economy.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    – According to the Keynesian theory, the economy is not able to pull through by itself and that the government should interfere and support stimulate the economy and reduce unemployment, while the Classical model says that the economy needs to self-correct in times of economic unrest and employment will increase if the time is given. On the other side, if most of the countries join together a recession, they will all start prospering at the same time. Thus, the cost of living will be lowered in every country, though this will cause economics to start growing again.

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  6. jiyoon.ecslb.f09on 19 Nov 2009 at 10:47 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    – China’s most concern of economic problem is the unemployment which seems to affect the demand influencing China’s exports affect the most; and this will lead the aggregate demand will shift to left.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    – Social costs are known as more low wages, which is less chance of getting another job, as well as lower living standards and probably more felony. The economic costs of unemployment are lower GDP which leads loss of output into the economy, loss of profits and as well as loss of tax revenue. Thus, it is important for a government to combat it because none of these effects are good for the society or economy.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    – According to the Keynesian theory, the economy is not able to pull through by itself and that the government should interfere and support stimulate the economy and reduce unemployment, while the Classical model says that the economy needs to self-correct in times of economic unrest and employment will increase if the time is given. On the other side, if most of the countries join together a recession, they will all start prospering at the same time. Thus, the cost of living will be lowered in every country, though this will cause economics to start growing again.

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  7. jiyoon.ecslb.f09on 19 Nov 2009 at 10:48 pm

    Sorry everyone, my mistake, I submited twice. Just read the one bove. My apology.

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  8. jiyoon.ecslb.f09on 19 Nov 2009 at 10:56 pm

    Jhon,

    Hi,

    It was pleasure to read your answer. That however, I had some Doubt about your answer. First of all, I don't see anyother answers, because there are 3 questions(?). Secondly, you stated that 'If many of these unemployed workers start making products that will never leave te country, supply will skyrocket and demand will go down just as sharply.' so, for this, maybe you could explain why it is like this: actually you did, but bit more specifically^^;; also next time it will be better if you write little longer, although it is not always good to write so long. But for this case, I think it is possibly necessary to write it quiet long.

    Nice answers! Thanks!

    JiYoon

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  9. Celine.ecslb.f09on 20 Nov 2009 at 2:17 am

    1. China’s most worrying macroeconomic problem currently is unemployment. Because the foreign demand for Chinese goods is falling, many people are loosing their jobs and being forced to move back to the rural areas of China in order to try find jobs and find a cheaper way of living. This rising rate of unemployment is a very significant rise from the original, near 0% unemployment that China once had.

    2. The social costs is the movement of workers from the urban to the rural areas. The costs of living in the urban areas are high, and if people aren’t getting an income than they are forced to migrate. However, the problem is that there aren’t any job opportunities in the rural areas right now either.

    3. The Keynesian and Classical models have different views on what will happen to unemployment after a fall in Aggregate Demand. The Neo-Classical economists believe that the economy will self-correct itself and there is no government intervention needed to boost the demand. This will occur because workers will accept lower wages in order to get jobs and this will boost the demand. On the other hand, the Keynesians believe that government intervention IS needed in order to boost the demand. Because of the increased unemployment, less people will be able to afford goods and because of this the aggregate demand will not be able to boost itself.

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  10. theresa.ecslb.f09on 21 Nov 2009 at 3:53 am

    China’s most worrying macroeconomic problem currently is unemployment. Unemployment is the impetus which jumpstarts the rest of the failing economic problems in China. Which unemployment increasing, demand for Chinese exports falls significantly due to the increased prices in exports. Of course there are other factors for why export demand is falling, such as the unwillingness for trading partners in Asia and the West to demand Chinese products, due to their own national recession, but the unemployment is a local explanation, crucial and specific to China’s society and economy. But certainly the recession in other westward countries, notably the United States, significantly decreases the demand for exports, which then in turn forces unemployment to rise.

    Many social and economic costs arise from increasing unemployment in China. For this reason, it is crucial for the government to take action and succeed in combating unemployment. The staggering numbers of Chinese unemployment is hinting that the country may face a very severe catastrophic unemployment crisis. Due to this looming crisis, consumer and investor confidence plummets, severing any chances for self-correction of the economy. The government must inject an increased expenditure into private spending, creating new income opportunities and this economic growth leading to greater employment.

    The Keynesian model of economics suggests that after a fall in aggregate demand, self-correction of the economy is virtually impossible and should not be considered a solution. It suggests that a weak aggregate demand yields a severe recession and a significant decrease in unemployment. Therefore, the Keynesian model advocates for fiscal or monetary stimulus from the government and supports the government taking an active role in fixing the economy. On the other hand, the Classical model suggests that China will best if let alone and given the opportunity or time to auto-correct itself, and as the economy deepens into a pit, wages will be lowered and people will be willing to accept the same jobs for lower wages, beginning the solution for a fixed economy and increased unemployment.

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  11. theresa.ecslb.f09on 21 Nov 2009 at 3:53 am

    John Lyons-Harrison,

    While clearly unemployment is a major factor in demand, I think it’s appropriate to address how these people became unemployed. The unemployment must have started due to an decrease in demand elsewhere which affected China and then caused the employment rate to decrease. For example, a large portion of China’s income is a result of exports, however, if countries aren’t willing to trade anymore because of a recession, i.e. the United States, then China must make decisions such as downsizing the economy and letting go of employees. So the unemployment which affected aggregate demand in China was also largely affected by recessions.

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  12. kerstin.ecslb.f09on 22 Nov 2009 at 9:49 pm

    1) I think that China’s most worrying macroeconomic problem currently is the unemployment, caused by the recession is the western countries. China’s growth rate is dependant on the market in western countries, since they are the main trading partners, buying off products cheaply from China. However, since they are facing a recession, less is demanded and so China cannot produce as much. The consequence is that firms fire workers, leading to very high unemployment rates. Therefore, the unemployment rate is mostly affected by the falling demand.

    2) Social: People become dispirited; they lose their self-esteem and confidence, which may affect the motivation to work. People also become less skilled in their job qualifications the longer they do not have a job.

    Economic: 1) there is a loss in the output of the economy, since the unemployed could be producing goods if they would be employed. 2) There is a loss in governmental revenue, since the unemployed don’t have to pay tax. 3) Government has to increase expenditure to support the unemployed. 4)Firms are likely to make less profits with less workers.

    Therefore, it is very important for the government to combat this, otherwise it will end in a spiral where more and more people become unemployed and eventually the government won’t be able to pay for all of them anymore and the economy will not be producing sufficient output for everybody.

    3)Keynesian: They believe that the spending in the economy won’t be increasing due to the recession, and because people don’t want to invest. Therefore the government is needed to boost spending by subsidies or lower taxes for example. This is what happens in most economies at the moment.

    Neo-classical: They believe that “laissez-faire” will make the economy correct itself. They believe that if the demand for output falls, so will the price level. Unemployment will increase. Wages will be decreased and so more people can be hired again (at lower wages), lowering unemployment.

    I personally believe in the Keynesian model, because the history of economics has shown that without government intervention, countries cannot get out of recession. Even now, many multi-national firms would have closed down without the financial support of the government.

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  13. kerstin.ecslb.f09on 22 Nov 2009 at 9:56 pm

    Celine, I enjoyed reading your answers, I agree that the biggest problem that China is facing is unemployment caused by the recession in foreign countries which lead to lower demand.

    I would have liked to know what your opinion on the Keynesian and Neo-classical models is, which one are you most likely to agree with?

    Also, I'm a little unclear about your point number two. You wrote that the social cost is having people move back to the rural areas. That is very interesting; I focued mainly on the individuals and that they might lose motivation. What I am wondering about how the movement of people into rural areas is necessarily a social cost. People don't get any work in either places, rural or city, so I don't really think it is a social cost if they move from one place to another. You said that costs of living are very high in cities. Good point! When people move to rural areas they might consume less and have grow more food etc. themselves. They also don't necessarily have to pay for a home anymore. This might decrease aggregate demand again. Do you agree?

    Kerstin

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  14. Katharine.ecsla.f09on 23 Nov 2009 at 5:32 am

    China's most worrying macroeconomic problem currently is unemployment, and it also affects the demand for China's exports the most.

    The social and economic costs of rising unemployment are loss of economic output, loss of profits, the lowering of GDP, lower wages and lowered living standards. The government combats these things because it is important to keep the economy producing at high levels and to keep society happy and successful.

    The differences in the Keynesian and Classical models in their explanations is that the Keynesian model says that government intervention is the only way to solve economic instability and problems, while the Classical model says that the economy will self-correct itself in such times and fix problems such as unemployment.

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  15. Katharine.ecsla.f09on 23 Nov 2009 at 5:39 am

    theresa.ecslb.f09,

    I agree with your response. China has a serious problem with unemployment and it is causing many other economic problems. Unemployment is the most dangerous problem to China's economy right now. What you said about the social and economic costs that are arising is definitely true and I definitely agree. The government is having to up their game to prevent future problems and to fix the looming crises. The Keynesian and Classical economic models are very set in their definition, but it is hard for anyone to know which one will be a more successful policy.

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  16. Derek.ecslb.f09on 23 Nov 2009 at 10:29 am

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s most worrying economic problem should be the worldwide recession. This is because China’s economy is relying on export to other countries. When the demand of the other country falls, the amount of China’s export will decrease and hence affect the demand of export in China.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Unemployment causes a lost of opportunity cost of social welfare. When the unemployment rate increases, the number of workers receiving unemployment benefits will also increase. This makes the government spending to increase. On the other hand, since the unemployment rate is high, government’s revenue through income tax also decreases, which makes the government in a difficult position of having less income and more spending on unemployment benefits. Therefore, the government is likely to cut the cost spent on health, education and military and the government has lost this opportunity cost (the next best alternative foregone) on spending on these things.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    In the classical view, the price level of the goods decreases without the change in real GDP output. However, the Keynesian view states that when the unemployment rate is high, the supply curve does not shift and the price level remains the same but only varies in the quantity produced.

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  17. Derek.ecslb.f09on 23 Nov 2009 at 10:34 am

    To kerstin

    I agree your response, the problem causing problems in China is the recession in the western countries.

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  18. Raphael.echl.f09on 23 Nov 2009 at 8:03 pm

    1. China biggest problem is unemployment, this is affecting the supply. The unemployment may have risen because the financial crisis put many countries into a recession lowering the demand. As many products are manufactured in China and there was a lower demand in general, those products will not have been needed to produce. This lead then to a rise in unemployment to China.

    2. The social cost of the unemployment rise is that the government is most probably going to rise the benefits of being unemployed. Economicaly the cost will be that the possible output of the country will not be reached

    3. In the classical model the equilibrium will restore itself as the AS will shift to right making a lower equlibrium. The Keynesians think that the AS will not shift only the Quantity produced will be less but for the same price.

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  19. Raphael.echl.f09on 23 Nov 2009 at 8:05 pm

    To Katherine

    For the first question why will the demand for export fall as a result of unemployment in China? Is it not the other way around, the unemployment will rise because of a fall in demand for chinese exports.

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  20. Celine.ecslb.f09on 24 Nov 2009 at 12:33 am

    To JiYoon,

    I agree with what you said in the first part of your number 3, about the different views of Keynesian and Neo-classical views. However there is a part of your #3 that I don't understand and I don't necessarily agree with. I don't neceassiyl agree that after a recession, all countires will start prospering at the same time. This is because the different countries governments might be taking different policy approaches to help the economy, the aggregate demand might rise faster in some countries than in others, etc.

    Also, when you said, "the cost of living will be lowered in every country, though this will cause economics to start growing again."

    I really don't understand this comment. What exactly do you mean by it? I'm not sure if lower living standards and costs will cause economic growth…

    But maybe I'm wrong…

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  21. Jack.ecslb.f09on 24 Nov 2009 at 3:18 am

    • What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s most worry macroeconomic problem is currently unemployment stemming from the decrease global demand in Chinese exports.

    • What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The social and economic costs of unemployment are many. Economically, there is decrease output, and demand due to decreased aggregate demand. This can cause the unemployment-supply spiral, and contribute to recession.

    • Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    Neo-Classical models argue that allowing the economy to self correct will ultimately boost spending once the price level is pushed far enough down due to the decrease demand. In theory, in models this makes sense however has not been found to work in the real world economy.

    Keynesian’s would argue that self correction will not work and that government intervention is necessary, with expansionary policies to increasing spending, i.e. reduction of direct taxes.

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  22. Jack.ecslb.f09on 24 Nov 2009 at 3:24 am

    To Akhilesh Dakwale

    I do agree that given enough time the economy will eventually reset and begin to grow, and I also agree that this entire process does appear to be cyclical, but do you not think that government intervention would result in faster results then the "laissez faire" neo-classical theory?

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  23. Alison.ecslb.f09on 24 Nov 2009 at 5:48 am

    1.What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    The most worrying current problem being faced by the Chinese economy is that of unemployment due to a lowering of global aggregate demand for Chinese products. This fall in aggregate demand is leading the a rising rate of unemployment in the Chinese cities, and thus it is contributing to a rural to urban migration.

    2.What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The social and economic costs of a state of rising unemployment are severe, and thus it is necessary for a government to combat this rise in order to stop this increase or diminish the level of unemployment. Some of the costs of an increase in unemployment are lower wages, lower living standards, urban to rural migration (this decreases urban unemployment, but increases rural unemployment because there are limited employment options in the rural areas as well as in the urban areas), consumer/investor confidence lowers, and crime increases.

    3.Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    Following the Keynesian economic model, with a fall in aggregate demand will come a fall in employment. Due to lower wage prices, re-employment will not occur without extensive government intervention in order to reflate the economy. Conversely, the Classical model states that the economy will self correct itself after a fall in aggregate demand, and government intervention will only serve to increase inflation.

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  24. Alison.ecslb.f09on 24 Nov 2009 at 5:55 am

    Derek.ecslb.f09:

    You've made a fantastic point that I've never thought of before, namely how with an increase in unemployment comes an increase in the number of people receiving unemployment benefits from the government. This increases the government expenditure without tackling the actual problem of unemployment. I wonder if in some countries there are many people prefering to simply live off of unemployment benefits rather than actively seek work, and possibly work for minimum wage… If so, this is a serious problem that is diminishing the government potential to jumpstart the economy.

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  25. michael.ecsla.f09on 24 Nov 2009 at 8:46 am

    1) What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    The recession is the biggest problem, as it led to the trade imbalance and lack of demand by shrinking incomes overseas, thus being the root cause of the problem. The falling demand most affects the trade imbalance, because as long as demand stays low it will grow worse.

    2) What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The social costs are unrest among civilians and resentment for an unhelpful government. The economic cost is a shrink in demand, which leads to a shrink in profits. If the government doesn’t step in, they quickly become unpopular.

    3) Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian model says the government must stimulate the economy, but the Classical model says that the economy will fix itself eventually

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  26. michael.ecsla.f09on 24 Nov 2009 at 8:47 am

    Alison.ecsla.f09:

    The unemployment is caused by the recession, so the recession is the bigger issue overall.

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  27. kaitlin.ecslb.f09on 25 Nov 2009 at 11:10 am

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution?

    Which of these does falling demand for China’s exports affect most?

    -Overall, unemployment is China’s greatest macroeconomic concern at the moment. This is affecting the demand of Chinas’ exports greatly; shifting the aggregate demand shifting to the left.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    -The social cost of rising unemployment is the decrease in living standards, and a dramatic change in lifestyle due to very low wages. Economic costs of rising unemployment will lower the Gross Domestic Product that is being put in the economy as well as a loss of tax revenue.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Classical viewpoint on what will happen to unemployment after a fall in aggregate demand would be that it advances all by itself with no government intervention needed. They believe this would happen if workers were to work for less so that the demand will rise. However, the Keynesians feel that government implication is needed to raise demand. The government would need to step in and give benefits and cut cost so that the people of the nation are able to pay for necessities.

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  28. kaitlin.ecslb.f09on 25 Nov 2009 at 11:17 am

    Alison –

    I do agree that the recession is the root cause for Chinas economic slump in employment. However I’m not fully sure what you mean by saying that the urban unemployment decreases and that rural unemployment increases. Wouldn’t it be just the opposite if the people are migrating to more rural settings?

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  29. Bryan Robinsonon 01 Dec 2009 at 2:59 am

    2.What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    It is so very important for the government to combat unemployment because this is what leads to a economic downturn. If part of the population is unemployed then they cannot put money back into the economy. Also it is important to make sure that the economy is working up to its full equilibrium.

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  30. Bryan Robinsonon 01 Dec 2009 at 3:02 am

    Derek.ecslb.f09

    That is a very good point you made, the more unemployment the more that the govermnet will have to spend on beifits such as healthcare.

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  31. diana.ecsl1.f09on 02 Dec 2009 at 11:24 am

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    It seems here that rising levels of unemployment are the main issue. Falling demand for China’s exports significantly affects unemployment more than anything else. “Economic theory would suggest, therefore, that China is facing a situation where falling demand for its output has led to rising unemployment due to the downwardly inflexible nature of workers’ wages.”

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Social and economic costs of unemployment include loss of economic output, loss of tax revenue, increase in government expenditure, and loss of profits. Living standards will fall as will productivity, morale, and health. There will be lower demand for products as well. Of course if these factors persist the economy will eventually fall into a recession. That is when China will really be in trouble. The government must combat unemployment at all costs or else the entire economy as a whole suffers.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian ideology is that in desperate times, the economy will have much better chances of improvement with government intervention. The economy cannot just rebound on its own. Keynesians believe in demand-side economics. Downwards, prices and wages are inflexible. Weak aggregate demand leads to recession and no self-correction. With fiscal and monetary stimuli from the government, the economy can be restored as well as full-employment.

    Neoclassical economists happen to favor supply-side policies. It would be argued that "China’s government would do best by letting the economy ‘self-correct’ in times of economic slowdowns.” As aggregate demand falls, unemployment will rise and price level will decrease. Those who desperately need a job will be willing to accept lower wages, thus forms will be inclined to hire more people. Thus aggregate supply will shift right until full-employment is reached.

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  32. diana.ecsl1.f09on 02 Dec 2009 at 11:26 am

    Jack, I agree with you. Unemployment indeed is cyclical and yes the economy may be able to bounce back independently, but there is no doubt in my mind that government aid would expedite the process. Just look at the recession we are in now. Without the government trying to make serious changes the economy would not be making such a quick turnaround.

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  33. diana.ecsl1.f09on 02 Dec 2009 at 11:28 am

    Celine, excellent responses. You referenced the urban/rural employment shift issue which is imperative since it seems to be the central cause to this problem.

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  34. christopher.ecsla.f0on 03 Dec 2009 at 6:31 am

    1. Currently China’s most worrying macroeconomic problem is unemployment. Because the foreign demand for Chinese goods is falling especially in the countries in the West (namely the United States), many people are loosing their jobs. As a result, the workers are forced to move back to the rural areas of China in order to locate employment opportunities. This also enables them to find a less expensive standard of living to go along with their lack of financial strength.

    2. There are many social and economic costs involved with increasing unemployment levels. First of all, the masses of workers are relocating to rural areas in order to find a less expensive mode of living. They can no longer afford to live in the expensive urban areas due to their lack of income. Thus, they move to the rural areas in order to incur lower costs of living as well as a higher chance of getting a job. However, employment opportunities in rural areas are exceptionally low, essentially zero. Thus, the workers are living worse and still making no money. As a result, the economy suffers because the people have no money left to spend so they stop buying the goods being produced. For this reason, the government needs to combat this unemployment. The country needs employment levels to rise and will not be able to correct itself without government intervention. There are no job opportunities available, even for those willing to work for very minimal wage. The government must, therefore, increase its expenditure to create new income opportunities and thus stimulate economic growth and increase employment.

    3. The Keynesian and Classical models have completely opposite views on what will happen to unemployment as a result of a fall in aggregate demand. The Neo-Classical economists tend to believe the economy will go through a process of self-correction without the need of government intervention needed to boost the demand. Workers will accept lower wages in order to get jobs, thus increasing the aggregate demand.

    On the other hand, the Keynesians believe government intervention is entirely necessary in order to boost the demand. As a result of the increase in unemployment, less and less people will be able to afford the goods produced. Because of this the aggregate demand will not be able to boost itself and the government will have to stimulate it by creating new income opportunities. This will lead to economic growth and then to an increase in employment.

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  35. christopher.ecsla.f0on 03 Dec 2009 at 6:36 am

    Theresa,

    I like what you said about needing to explain the reasons for unemployment in China. It is not only a result of the Chinese economy, but is affected by the recessions around the world. Especially in the United States, the demand for Chinese exports is decreasing radically as a result of these recessions. The foreign governments are trying to spend as little money as possible and rely on the goods produced in their own country. Thus, the Chinese economy begins to decline rapidly. This is the main cause for unemployment in China, the severe loss of demand for their exported products.

    I also like what you said about the government intervention that is necessary to boost the Chinese economy. It's true, the government needs to spend money to create new employment opportunities for its people. Then demand for the products produced will increased since the members of the population are once again earning an income and can afford them. The economy is not going to fix itself as the Neo-classical economists believe. The government needs to help out for this to occur.

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  36. ben.ecsla.f09on 04 Dec 2009 at 9:21 am

    China’s most worrying macroeconomic problem is unemployment. Because the foreign demand for Chinese goods is falling, many people are loosing their jobs and being forced to move back to the rural areas of China in order to try find jobs and find a cheaper way of living. Aggregate demand will shift to the left. With the amount of Chinese exports falling, so does the country’s injection into there economic cycle.

    The social and economic costs of unemployment are many. Some of the costs of an increase in unemployment are lower wages, lower living standards, urban to rural migration (this decreases urban unemployment, but increases rural unemployment because there are limited employment options in the rural areas as well as in the urban areas), consumer/investor confidence lowers, and crime increases.

    The Keynesian model indicates that unless the government takes drastic measures to increase employment in the private sector, the economic situation will worsen. Also, spending in the economy is unlikely to increase on its own due to the huge increases in unemployment and corresponding lack in consumer and investor confidence. The neoclassical model however, based around supply-side policies, indicates that the economy will self-correct in time. Because millions are out of work, and because prices are lower, labor will be willing to accept lower wages, encouraging firms to increase their employment of labor, shifting aggregate supply outward and ultimately restoring full-employment at a new, lower price level than before the downturn began.

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  37. ben.ecsla.f09on 04 Dec 2009 at 9:29 am

    Chris,

    Your examination of the social and economic costs of rising unemployment was lacking one thing for me, and that was mention of the rural/urban swap that is going on. To me this seems to be one of the central causes as well as results of the entire issue. In rural areas, there wont be the needed job either, so the workers enter a vicious cycle of moving until they find work, which could take years.

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  38. courtnei.ecslb.f09on 07 Dec 2009 at 12:06 pm

    1. What is China's most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China's exports affect most?

    – China's most worrying macroeconomic problem currently is unemployment. Though it saw 11% growth last year alone, China now has 20 million unemployed and stands the chance of even more. This is the direct result of falling demand for China's exports. As recession paralyzes Western countries, China feels the aftershock in the form of plummeting demand. And as demand for exported goods drops, so does the demand of firms for workers. Like in every economy, unemployment in China is leading to lower national output, lower tax revenue, lower profits, lower productivity, lower standards of living, etc. But this is made worse by a sort of rural-ization occurring in China. Now that job opportunities are fading fast in urban areas, Chinese workers are returning to their family farms and hometowns outside of big cities. This poses a potential threat to productivity when the economy picks up again, as a big chunk of the Chinese workforce has moved out of major cities.

    -

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    – Economic costs of rising unemployment include a loss of output to the economy because fewer workers means fewer goods produced; a loss of tax revenue because fewer people are paying taxes; an increase in government spending because the government has to pay out benefits to the unemployed; and a loss of profits because firms produce and invest less with fewer workers. In regards to social costs, a fall in disposable income is accompanied by a fall in living standards, and if employee morale suffers due to a looming fear of unemployment, productivity is likely to suffer as well.

    -

    3. Discuss the differences in the Keynesian and the Classical models in their explanations of what will happen to unemployment after a fall in Aggregate Demand.

    – Keynesians believe that economic self-correction in times of recession is highly improbable due to resulting unemployment and therefore advocate government intervention focusing on increasing aggregate demand. These demand-side policies involve the use of taxation, government spending and interest rates to boost demand. Classical economists, however, believe the economy is self-correcting and naturally gravitates toward full employment. High unemployment will force workers to accept lower wages, and as a result, employment will rise. Classical economists focus on supply-side policies that will improve the productive potential of the economy.

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  39. courtnei.ecslb.f09on 07 Dec 2009 at 12:20 pm

    Derek,

    Great answer to the second question, about the cost of unemployment. I agree that unemployment leads to an opportunity cost of social welfare, and I think you did a brilliant job explaining it. As unemployment increases, the government is literally forced to fight a losing battle. Though their coffers are quickly drained by increased need for social benefits, taxes only trickle in as individual income lessens. I really appreciated the idea of health, education and military spending as opportunity costs in times of unemployment. I really hadn't thought of this, but it makes sense. As funds run short, I suppose governments are forced to take from things that aren't immediately necessary.

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  40. Olajumoke.ecslb.f09on 21 Dec 2009 at 6:36 am

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    I believe that the main macroeconomic problem for china is Stagflation and Unemployment. China's price levels are still the same as during its prosperity and now, during hard times, there are less people working which means there is less income moving in the business cycle and if this pattern continues, they could have an economic meltdown like in Thailand. the falling demand for China's exports most affects it's unemployment.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The major social cost is a distrust of the economic system. This could lead China to a return to communism, which would cause it to become considered a hostile country. It is so important for government to combat it so that the people do not lose faith in the government and either immigrate or revolt.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    Keynesians believe that it is up to the government to stimulate the growth while neo-classicals believe that the problem of unemployment will fix itself.

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  41. Olajumoke.ecslb.f09on 21 Dec 2009 at 6:39 am

    Response to Courtnei.ecslb.f09:

    I see the merit in many of your ideas but how can you argue that it is in threat of having the problem escalate when there is a turnaround in the global economic situation?

    Do you really think the Chinese government would begin giving out benefits when they hold the option to basically deport many of their people and considering the Chinese people are not afraid to immigrate?

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  42. sara.echl.f09on 14 Mar 2010 at 7:16 am

    1. China’s most worrying macroeconomic problem currently is unemployment. This is due to the fall in foreign demand for Chinese goods due to the worldwide recession and causes a leftward shift in the Aggregate Demand curve. The falling demand for China’s exports affects unemployment because many people are losing their jobs and being forced to move back to the rural areas of China in order to try find jobs and a cheaper way of living.

    2. The social cost of rising unemployment is that people will lose confidence in themselves because of their inability to get a decent job. This will cause them to lose motivation to look for a job and make them want to stay at home instead. The economic cost is that the possible output of the economy will not be reached.

    3. In the Neo-classical view, the government will correct itself because the workers will start to accept lower wages, as there is nothing else available, and this will increase the demand. The Keynesians believe that because of the increased unemployment, fewer people will be able to afford goods and the aggregate demand will not be able to increase by itself, so government intervention is needed.

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  43. sara.echl.f09on 14 Mar 2010 at 7:27 am

    Ben,

    I like your answer to the second question about the rural unemployment and the increase in crime. It never ocurred to me that crime could also increase. It's an interesting thought.

    Sara

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  44. Trevor.echl.f09on 14 Mar 2010 at 7:29 am

    Right now, China’s most worrying economic concern is unemployment. For a nation that lasted many years with 0%, current levels are alarming and could spur a greater social movement that could threaten the government there. Falling demand for China’s exports effects the recession the most, because net exports are one of the factors that determines the aggregate demand of an economy.

    The economic costs are such that there are less people who live in higher tax brackets which means that the government generates less revenue. Also, the government must spend more on unemployment compensation and welfare, a major depletion of resources. In addition, businesses find that with less workers, it’s difficult to continue at the same size that they were operating at. The economy begins to shrink. Also, as I mentioned above, unemployment causes great social unrest, something not favored and not popular in the Communist government of China.

    In the Keynesian model, a drop in aggregate demand may lower prices but it will also decrease output and cause increases in factors such as unemployment. This is when it is decreasing on the horizontal area of the graph. In the neoclassical model, there will be a short term drop in real output. But soon, the economy will self correct to its previous output level.

    Trevor Tezel

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  45. Trevor.echl.f09on 14 Mar 2010 at 7:47 am

    Courtnei,

    I agree with you that unemployment is the most pressing concern facing the Chinese economy at this point in time. I think that this has a lot of effects, some of which you outlined. I think we can never underestimate what worker morale can do to an economy: make or break it. I think you can attribute some of the USSR’s failures to this fact. China, though, is on a more free-market path than before. Such problems soon should be rectified and the economy will begin to again experience economic growth.

    Trevor Tezel

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  46. Meiling.echl.f09on 15 Mar 2010 at 3:49 pm

    1. Currently, China's most pressing economic problem is increasing unemployment. Opening up to the West meant that China has experienced unprecedented economic growth over the past decades because of its massive manufacturing center. However, this is slowing down because demand for Chinese exports is falling as unemployment rises and income falls in Western and Asian nations, which means that AD for Chinese goods has shifted left. This has resulted in a significant increase in unemployment in urban areas.

    2. The social costs of unemployment can include: rising crime rates, other social problems such as domestic and alcohol abuse, an increase in relative poverty and income inequality, and destabilize society (for example with riots). This could lead to serious problems in the future if the skills of unemployed workers become outdated, and it becomes even more difficult for them to find jobs.

    The economic costs of unemployment, first and most significantly, are a lost output of goods and services. Unemployment causes a waste of scarce resources, and this, if not rectified, can have a negative effect on a country's growth potential. High unemployment means that the government has spend a greater proportion of its revenue on unemployment benefits whilst receiving less tax revenue. This could result in a budget deficit, and the government will lack the ability to finance other projects (such as building infrastructure), that could benefit society and the economy as a whole.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    3. According to the Keynesian model, the economy will be unable to correct itself with market forces, because people will be earning less income and will have less to spend (further driving down AD). Therefore, government intervention will be required, in the form of increased spending (employment schemes and so on), to try and push aggregate demand to the right.

    The Neo-classical model however, believes that, given time, the economy will self-correct, and therefore no government intervention is required. This is because workers will accept lower pay just so they are unemployed, and them spending their wages will boost demand.

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  47. Meiling.echl.f09on 15 Mar 2010 at 3:58 pm

    Trevor,

    I agree with your point about unemployment creating social unrest. I guess this is because, the Chinese government, being a dictatorship (not in a negative sense – it is not a legitimate government because it isn't elected by the people), means that it is crucial to the continued success of the Communist party for them to keep the Chinese people happy – and this basically means keeping unemployment very, very low. Otherwise, as you said, they will revolt. Anyway, a possible way for the Chinese government to do this is by creating an internal market for Chinese goods, because then their economy, which is export based, will not have to rely on the cyclical fluctuations of other countries.

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  48. Mattea.echl.f09on 16 Mar 2010 at 4:20 am

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China's most worrying macroeconomic concern currently is unemployment. This unemployment has been caused by the falling demand for China's exports. As globalization has become a powerful force in the economies of all countries, demand for China's products has risen to the point where many jobs depend on it. Demand has increased due to the global recession, causing job losses.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    With rising unemployment comes increased difficulty for citizens. This can in some cases cause civil unrest, which can be dangerous to those in power. The French Revolution is an example of what happens when the majority of a country is poor and very angry.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    In the Keynesian model, a decrease in AD will cause a decrease in output, and thus an increase in unemployment. There is no self-correction.

    In the classical model, however, while unemployment also increases, firms will be encouraged to sell their output at lower prices. Labor will be able to accept lower wages, increasing employment. The economy self-corrects.

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  49. Mattea.echl.f09on 16 Mar 2010 at 4:23 am

    Meiling,

    You mentioned social costs of unemployment such as an increasing crime rate, alcohol abuse, and riots. This can often lead to even greater unrest, that may eventually result in the overthrow of the government. Ironically, this is how many communist governments came to power. After losing their jobs and suffering in a capitalist system, many people turn to this alternative economic method.

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  50. Marcelo.echl.f09on 16 Mar 2010 at 6:22 am

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    I believe that unemployment, as due to the economic recession, it has enormously increased. Since China was one of the greatest exporters, many jobs were directed to exporting, but, due to the recession, demand for China's exports has fallen, leading to a cut in the supply, and many workers being laid off; increase in unemployment.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Unemployment means that a lot of people are struggling to survive, since they have no source of income. Thus, standards of living decrease a lot. In addition, unemployment also means that the economy is not as its full empoyment level, implying that all resources are not being properly used, wasting them. Therefore, production is not as its maximum capacity, and economic growth is not being achieved.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    In the Keynesian model, unemployment would theoretically increase, since, as demand falls, firms lay off workers to decrease production, and market forces have no way to correct the gap. Unemployment will continue decreasing unless the government acts, since as more workers are laid off, more the demand falls.

    In the classical model, when demand decreases, there will be unemployment for a short amount of time, but market forces will quickly correct this, since workers will be willing to work for lower wages, then slowly increasing the demand as well.

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  51. Marcelo.echl.f09on 16 Mar 2010 at 6:36 am

    Trevor,

    I find it quite impressive that China could have had an unemployment level of 0%… Dont you? Because, in a country with 1 000 000 000 people, it is very hard not to have anyone without a job… However, I think that this number was actually cheating us, since for example, if there were a 10 million people without jobs, it would only imply 1% unemployment… Thus, there can easily have been a million people unemployed (which in Cuba would have meant 10%), but the unemployment level would have been rounded up to 0%…

    Yeah, its not very relevant, but I was really shocked by this implausible number…

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  52. Catherine.echl.f09on 16 Mar 2010 at 4:43 pm

    1.) Since demand for Chinese exports has fallen, unemployment has become China’s biggest concern. Especially in industrialized areas (like cities) that have become heavily reliant on trade, the recession has caused a bump in production. As a result, many people are now unemployed.

    2.) The overall social cost of rising unemployment is a decrease in welfare of the general population. When people become jobless, they tend to enjoy fewer benefits, like going on vacations or shopping. Now, this also brings about economic costs of unemployment. When people lose jobs, they spend less, and therefore less money circulates into the economy. Savings won’t help a recession; the economy needs stimulation from cash flow. Governments need to combat these potential problems simply because they should protect their people, and also because they may be overthrown if they do not.

    3.) The Keynesian model calls for government help. When the output level decreases, the economy will not correct itself and needs to be corrected by government spending. On the other hand, in the classical model, unemployment will increase but producers will sell their products at a lower price. As a result, prices in the economy will fluctuate and everything will even out. Government intervention is not necessary in the classical model. ?

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  53. Catherine.echl.f09on 16 Mar 2010 at 4:45 pm

    Hi Mattea,

    In response to the first question, do you mean to say that demand has decreased due to the global recession? You bring up a good example in your second response.. I think another good example would be China itself, when Mao led peasants in a revolt against government.

    Also, Marcelo,

    I really like your analysis of the 0% unemployment rate in China. Thats an interesting way to look at it! :)

    - Catherine

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  54. daniel.echl.f09on 16 Mar 2010 at 6:17 pm

    Discussion questions:

    1.What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    The biggest problem facing china is unemployment with a massive fall in demmand for exports from china. we have seen a massive fluxuation in unemployment. This high unemployment means that there will be less disposibale cash and no money bing put back into the economy which will have a massive problem causing many social and economic problems in china.

    2.What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    With a lack of jobs and an increase in unemploytment means that people have no scource of income. this will mean that living standards will decline dramitcally as they have no ways of affording essentials. another problem is that they will not beputting money into the economy and so the economy will become weaker and with there dependence on exports means that the support from local input into the economy essential. Due to the lack of money behaviour in the average consumer will be to save and so this will criple the economy as it needs an increase in spending in order to recover the economy. the goverment need to impliement monetray and fiscal polices to stimulate the markets to increase the spending if it doesnt then the situation will worsen.

    3.Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The use of the keynesian model would mean for a goverment intervention and for an introduction of montery and fiscal policies so that they can cause a stimulus in the market. Large amounts of spending aswell will be need for the goveremt in order to make this achoveable. The neo classical model is a lassiez faire approach and it indicates that the market will correct itself as the producers will reduce the prices because of the lack in disposible income and so then the demmand will slowly increase and so the market will start to correct its self but this theory has never really been proven possible.

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  55. daniel.echl.f09on 16 Mar 2010 at 6:23 pm

    Catherine

    Your first answer clearly states the major problem, would also include the fact of inflexible wages and less labour intensive agriculture markets that have worsen the situation as no jobs in the rural areas. Is interesting to hear in your second answer that the collapse of the economy and high un employment will cuase the leader to be oever thrown is this to servre or do you belive this will happen ???

    totally agree with the goverments need to look after the people and that they have control over the situation and they need to fix it.

    great answers !!

    Dan

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  56. Dennis.echl.f09on 17 Mar 2010 at 12:54 am

    1. The most worrying current macroeconomic problem in China is unemployment and the demand-deficiency for exports occurring there presently is taking the greatest toll on their employment levels, which can be seen by the lack of 0% unemployment.

    2. The social cost of unemployment is that it is a slippery slope. By being unemployed, one is first denied employment in one job, but still has fallbacks, and soon enough he/she won’t even be able to be employed by their fallbacks and eventually they are going to end up living off of unemployment benefits. This is very pessimistic but it tends to happen this way.

    3. The difference between the Keynesian and Neoclassical models is what they theorize will happen after a fall in aggregate demand. Both agree unemployment will occur, however, the neoclassical followers say that market forces will quickly repair the problem and full employment will quickly be restored, whereas the Keynesians believe that the economy will fall into a recession and government intervention will be necessary to repair the economic situation.

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  57. Dennis.echl.f09on 17 Mar 2010 at 1:01 am

    Daniel,

    I agree with you that living standards would definitely decrease because there is less income coming into the average home, if any at all. I think a more important social effect of the unemployment would be the lost confidence in the economy and the loss in confidence to go out and search for a job. Unemployment generally decreases morale in my opinion and I think that that is why it takes so long for the world to get out of a recession.

    -Dennis-

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  58. Marrissa.echl.f09on 17 Mar 2010 at 1:16 am

    Because of recession, china is more concerned about the unemployment rates. This is because of the fall of foreign demand for Chinese goods due to the worldwide recession. . Falling demand for China’s exports effects the recession the most, because net exports are one of the factors that determines the aggregate demand of an economy. Companies begin to shrink and the unemployed people have made that possible by saving money and being unable to buy at the companies place. so when unemployment rises, company demand falls. This causes social unrest which china in turn is not popular to the communist government of china. In the Keynesian graph, a drop in aggregate demand will lower prices and it will also decrease output and cause increases in the special factors like unemployment. This is when it is decreasing horizontally on the graph. In the neoclassical model, there will be a short term drop in real output.

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  59. Marrissa.echl.f09on 17 Mar 2010 at 1:22 am

    Trevor.echl.f09,

    i like your points on how the government seems communist and wont care about the social unrest in the unemployment rates. xame thoughts as mine. i also feel that especially for china, as umeployment rises they should be concerned about the companies successes and selling products becuase if money isnt comming to the umemployed people then how can china's people buy good in the sooooo many stores that are around china.

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  60. chamonix.echl.f09on 17 Mar 2010 at 1:58 am

    1. Currently China's most worrying macroeconomic issue is unemployment. Falling demand for Chinese exports have caused this problem because firms struggling to survive while demand drops lay off workers in an attempt to cut costs.

    2. Unemployment harms individuals as it lowers morale and makes a dissatisfied population. There are also costs to the government. The output of the economy falls, which lowers GDP. The government loses revenue from the unemployed who cannot pay taxes. Finally, the government must fund unemployment relief, which increases its spending. Therefore, the government must work to combat unemployment to ensure that all of its citizens are provided for and to reduce its own costs so that it does not overspend on unemployment.

    3. The Neo-Classical model assumes that the economy will self-correct during a period of unemployment as spending or hiring will go up. However, the Keynesian realizes that as the unemployed lose their wages, demand will drop and so more people will lose jobs which will cyclically cause demand to drop. The Keynesian model argues that the government must intervene to promote spending and hiring in order for the economy to move past the high-unemployment state.

    Chamonix

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  61. chamonix.echl.f09on 17 Mar 2010 at 2:03 am

    Marissa (and sort of Trevor as well…),

    I am a bit confused about your response to Trevor's post. You said that the government would not care about social unrest and unemployment because of the relative communism of the nation. I think that Trevor was arguing (and I know that I am arguing) that a large, centrally planned government would probably try to reduce social unrest and unemployment as much as possible. As the people have less say in the government than in more capitalism-based nations, social unrest quite often leads to revolution or rebellion. Therefore, I would disagree with you and say that the government probably cares a great deal about this issue.

    Thanks for the interesting post and discussion!

    Chamonix

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  62. Jacob.echl.f09on 17 Mar 2010 at 10:06 am

    1. Unemployment is the worst problem in China right now. This is because the demand for Chinese goods in the global economy is low. So industries in China do not make as much revenue and must make cuts. And with the population of work force so high in that country, the unemployment is very high.

    2. Unemployment lowers the amount of money in the circular flow, lowers potential output, and raises government expenditures. Since the unemployed do not ay taxes, the government also makes no revenue, but loses money on unemployment benefits, so they try to counter this by combating unemployment.

    3. In the classical model, there is a self correction when AD decreases, but in the Keynesian model, there is none.

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  63. Jacob.echl.f09on 17 Mar 2010 at 10:19 am

    Chamonix,

    It is interesting that you say that unemployment has a morale impact as well as the economic impact. You make a good point here since unemployment does have some psychological implications that can cause the populaiton to be dissatisfied. Good job, Chamonix.

    Jacob

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  64. elijah.echl.f09on 18 Mar 2010 at 2:32 am

    1. China's most worrying macroeconomic problem currently is trade imbalance. Currently China attempts to export far too much of its goods, and thus does not consider them for domestic sale. Due to this falling demand for China's exports can't be countered and falling exports can just be part of natural economic cycles (such as the current recession.) Of China's falling demand for its exports that is most likely affected by the recession which is global. People everywhere have less money to spend even on cheap Chinese goods. Why some expected them to preform as Giffen Goods (due to their cheapness) this is clearly not the cost.

    2. The Social and economic costs of rising unemployment of rising unemployment is negative feelings towards the government and such. This leads to instability within the nation and the government. Additionally unhappy people are less likely to work as hard. Economically speaking it represents lost value of goods. If exports are still being made but not being shipped or bought then they still cost something to produce. Without being sold they effectively sit in port costing the companies maintenance costs and farther dragging down the economy. It is important for governments to combat these social and economic costs because a failure to do so could lead to the overthrow of the government itself it the crisis gets bad enough, but additionally if any government wishes to continue to exist it needs to provide for its people. Social Contract theory and all.

    3. The differences in the Keynesian and Classical models in their explanation of unemployment in response to a fall in aggregate demand breaks down to the Keynesian model predicting farther economic collapse if aggregate demand was to fall (Keynesian theory being based around stimulating demand via government spending) and the Neo-Classicists believe that falling demand will force the economy to naturally correct itself.

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  65. elijah.echl.f09on 18 Mar 2010 at 2:34 am

    Jacob:

    I find it interesting how you tend to explain everything based around unemployment? Was this just you focusing on unemployment or do you sincerely believe that all of these issues stem from unemployment? And in that case where does unemployment stem from and how is it fixed at the core of the issue? Also good job on elaborating on the problems for a government of having unemployed population. I looked up and saw that and then felt silly for forgetting to include it in my own explanation.

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  66. masayaechlf09on 19 Mar 2010 at 11:31 pm

    @Jacobechlf09

    To supplement your comment about the differences between Keynesian and the Neo-classical model, the Neo-Classical suggest a laissez-faire economics. When unemployment rises, consumer consumption drops. The firms will start feeling they must lower prices so the price level drops. Because all prices for all products are lower, people start accepting lower wages. With labor force returning to work, the economy experiences an equilibrium with the same output but at lower price level. The Keynesian suggest the government must intervene the economy in order to solve the problem and that the economy cannot self-correct.

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  67. masayaechlf09on 20 Mar 2010 at 12:26 am

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China's most worrying macroeconomic problem is the increase in unemployment caused by the global economic crisis. Despite the exodus from urban areas to rural areas to seek job opportunity, so many are going back to the agricultural sector, it is causing the same lack of opportunity in urban area. The falling demand for China's export can be blamed on the recession in foreign countries. Because the Chinese market is mainly constructed through the exports, the recession of the importer's decrease the total demand for the Chinese products.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Socially, the rising unemployment is dispiriting the people and demoralizing them to not work. Their motivation to work is debased and even in some cases, people are benefitting more from lack of job than actually having a job. The economic problems of rising unemployment are that the government is collecting less tax revenues from the labor force, the country has less Gross Domestic Product (GDP), and the employees are losing output into economy.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    In the Keynesian model, the theory suggests that the economy cannot 'self-correct' hence the need for government intervention into the economy. The Neo-Classical model suggests that the economy can recover by itself because when unemployment rise, the firms drop price levels knowing they can no longer be competitive at high prices. Because prices of all product have dropped, the unemployed begin to accept lower wages and the output would meet a new equilibrium at a lower price level.

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  68. Ralph.echl.f09on 22 Mar 2010 at 4:46 am

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China's biggest macroeconomic problem is without a doubt unemployment, so many people have lost their jobs and now migrated back to their original town that there is no work available for them. Which is precisely why they left that area in the first place, as well as for the larger salaries. China isn't the only country suffering from the recession and if I remember correctly China actually grew during the recession. Something like that, please tell me if I'm wrong. However I know that this month China has reached its 16 month high on its own inflation rate, now the government is opting to increase interest rates, which won't help recover the economy in a laissez faire way, which you wouldn't expect under a communist government. I believe its a bit of a mixture of a bit of all however unemployment remains the biggest.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Loss of output to the economy is very important in China, as it is very reliant on exports. With unemployment rates being high China is missing out on tax which in turn could block building of China's infrastructure, or unemployment benefits, even though I'm not sure China does this, because they don't even offer a state pension. The longer this unemployment takes the lower the GDP of China will be which wouldn't make it fully efficient and it would be wasteful for all the resources they have. The social cost is a bad running economy and high unemployment rates which could increase all sorts of other factors like crime etc.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    Neo-classical economics believe in a laissez faire attitude, but how is this possible in a communist society? As well mentioned in the article history has shown without government funding it is hard to get out of a recession if not impossible. If China take a neo-classical view then it means that the fall in aggregate demand will only increase as the time period of high unemployment. I believe without government funding, complete chaos will arise, economy would have a serious dip. Possibly causing political unrest if it is for a long period of time.

    If you followed the Keynesian way then the solution is probably solved in short term as proven in the recession we are in, the billions of whatever currency invested in whatever country economy has worked and slowly the world is growing out of the recession. Government funding in China is required as they don't even provide state pensions, without it political protests will occur, however as we have seen in the past China is very good at dealing with these……

    Unemployment will only get worse if there is no government funding, and if it is left it will only cause chaos and extreme poverty.

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  69. victoria.echl.f09on 26 Mar 2010 at 9:40 am

    1.China’s most worrying problem is unemployment because imports from china as less demanded and so economy can’t develop and people are losing there jobs.

    2.The social and economic cost of rising unemployment is that the lifestyle of people will change because of lower wages, which concludes to a lower living standard and poor health. Lower tax revenue will happen.

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  70. victoria.echl.f09on 26 Mar 2010 at 9:44 am

    Hey Jacob

    I like how well you answered the second question this brings me to an idea (probably everyone had it already) that it is not only painful for the people that are losing there jobs but also for the governemt and they have also less income it is similar to a viciouse cirle and hard to get out of.

    vica

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  71. Armando.echl.f09on 27 Mar 2010 at 5:30 am

    1. China’s biggest issue is the rate of unemployment, due to recession the Chiniese goods have fallen, so the aggregate demand has fallen too, leading to, so there is no growth, meaning unemployment.

    2.The social cost of increcrasing unemployment is the fact that people loose confidence and hope as they believe they wont find a good wage choice, so they will just not try to get one. Also, the economic cost is the possible output of the economy wont reach.

    3. According to the Neo-classical theory, this will fix itself as people will be forced to adapt to the wages, so the demand will increase. However, the Keynesian theory, believe that due to the unemployment, people wont be able to buy goods or services so the demand will not increase; therefore, the government must intervene.

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  72. Armando.echl.f09on 27 Mar 2010 at 5:34 am

    Hey Sara,

    I think is very intersting the difference you talk about the Neo-classical and the Keynesian theories, meaning the government involvement in each. For instance, according to the Neo-classical theory, this will fix itself as people will be forced to adapt to the wages, so the demand will increase. However, the Keynesian theory, believe that due to the unemployment, people wont be able to buy goods or services so the demand will not increase; therefore, the government must intervene.

    Armando

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  73. Eline.echl.f09on 27 Mar 2010 at 11:56 am

    1) Currently, China's most pressing macroeconomic problem is its unemployment, which is caused by the worldwide recession and the substantial decrease in aggregate demand, and consequently fall in demand for China's exports, this recession has resulted in.

    2) In terms of social costs, unemployment will not only demotivate workers and make them lose their confidence, it will also make it harder for them to find a new job and thus will dispirit them even more. The living standards of unemployed individuals will deteriorate as they have no more reliable source of income. But also economically unemployment has is detrimental, as it would mean a loss in an economy's output, decreased tax revenues for the government as people are not earning enough to pay their taxes, firms would make less profit as the people would have less disposable income and government expenditure would increase as the government would have to create job stimulus packages, which is likely to indebt the government.

    3) Keynesians believe that only through government intervention, where the government would stimulate demand, unemployment can be corrected. Neo-Classicists, on the other hand, argue that a fall in aggregate demand would generate lower wages, with as a result that the unemployed would have no other option but to accept those lower wages and thus unemployment would decrease, as would Aggregate Supply, and there would be economic growth again – in other words, government intervention would not be necessary.

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  74. Eline.echl.f09on 27 Mar 2010 at 12:05 pm

    Ralph,

    Your post was very interesting to read, you clearly can see that you have looked at China in more depth. I wasn't aware of the fact that China was actually experiencing high inflation during the recession and found your reasoning about neo-classicism not being adaptable to communism thought-provoking, so thank you for sharing that! Great post:)

    -Eline

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  75. Laura Yilmazon 31 Mar 2010 at 11:39 pm

    1. China’s most worrying economic problem is unemployment, which affects the demand for China’s exports most.

    2. The overall social cost of rising unemployment is a decrease in welfare of the general population. When people become jobless, they tend to enjoy fewer benefits, like going on vacations or shopping. Now, this also brings about economic costs of unemployment. When people lose jobs, they spend less, and therefore less money circulates into the economy. Savings won’t help a recession; the economy needs stimulation from cash flow. Governments need to combat these potential problems simply because they should protect their people, and also because they may be overthrown if they do not.

    3. The use of the keynesian model would mean for a goverment intervention and for an introduction of montery and fiscal policies so that they can cause a stimulus in the market. Large amounts of spending aswell will be need for the goveremt in order to make this achoveable. The neo classical model is a lassiez faire approach and it indicates that the market will correct itself as the producers will reduce the prices because of the lack in disposible income and so then the demmand will slowly increase and so the market will start to correct its self but this theory has never really been proven possible.

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  76. Laura Yilmazon 31 Mar 2010 at 11:41 pm

    eline,

    i think your answer to number two and mine have a lot in common.

    Laura

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  77. Sondos2on 05 Mar 2011 at 7:49 pm

    • What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s current problem is mainly the fall in aggregate demand internationally for its products in the context of global recession, which lead to massive unemployment. It’s the unemployment, the consequence of this recession on China, which poses the great dilemma… In more detail, the falling demand for China’s exports world-wide during the economic downturn reduces the revenue collected from these exports, and therefore profits of the firms in question. This leads to less investment in the factors of production, particularly labour, and less output. Exportation companies are then obliged to lay off thousands of their workers to compensate for their loss of profit, causing mass unemployment in China. If anything, the recession seemed to have affected the Chinese employment rates most, leaving hundreds of thousands without any source of income, and little governmental support.

    • What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Any nation subject to rising unemployment suffers from its great social and economic costs. The unemployed themselves receive less income from unemployment benefits (if offered by the government) than if they were employed. This reduction in income implies lower living standards and worsening costs over time. This creates high levels of stress which may give way to depression, and in the extreme cases, suicide.

    On a broader social view, unemployment can be seen as a form of poverty, creating a society where higher crime rates, gang activity, and vandalism are more likely to flourish. The overall HDI value as well as GDP values of the country are likely to fall.

    The economy also suffers significant output decreases with rising unemployment rates. This implies that the economy will be working well below its full economic potential. Fewer individuals will be receiving income, and thus government revenue will decrease, making it more difficult to intervene in such harsh times of economic downturn in China’s case. Moreover, state benefits are generally paid for the unemployed, (at times, greater investment in health care is required for health problems the unemployed face) which involves an even greater opportunity cost.

    All of the above are reasons for which the government must intervene to combat unemployment, for the common good of the society, and of the nation’s economy as a whole.

    • Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian model suggests that aggregate demand can decrease such as there is a decrease in the level of real output, without any consequent decrease in the price level. This means that a fall in aggregate demand in a period of international economic downturn will lead to severe recession and no self-correction due to the massive rates of cyclical unemployment which correspond to a lack in consumer confidence to spend, and business confidence to invest. In short, unemployment will only increase, and transform into long term unemployment which consequently imposes adverse consequences upon the unemployed individuals themselves, the society, and the Chinese economy as whole. This stresses the need for government intervention by means of expansionary monetary policies, expansionary fiscal policies, and supply-side policies (since we’re in the context of a form of disequilibrium unemployment).

    Conversely, the neo-classical model (which favours a laissez-faire approach to the recession caused by a fall in aggregate demand) depicts that in the short run, a decrease in AD will decrease total output, thus increasing unemployment, due to less investment in the factors of production by the firms in question. The lack of confidence in consumer expenditure will force the price level down. However, according to this model, the mass unemployment will force the labour force to accept lower wages (after all income is better than no income in a free market economy with little, if any government intervention), thus gradually decreasing unemployment at a lower price level. Note, nonetheless that lower wages will likely lead to discontent, reduced motivation amongst workers, and great likeliness of worsening working conditions.

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  78. Sondos2on 05 Mar 2011 at 7:53 pm

    Eline.echl.f09:

    You shone a light on something I hadn’t thought about on spot: government debt. The unemployed not paying taxes, consuming both unemployment benefits, and more healthcare; it seems as though the government is very likely to spend more than it receives in revenues on the unemployed, as well as in attempts to reduce unemployment rates. Although this may seem to be the fast and easy, no consequence solution in the short run, this would surely lead to much fiscal problems in the long run for the economy and nation in question as a whole…

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  79. Deniz Kapaogluon 06 Mar 2011 at 7:04 pm

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    Currently the most worrying macroeconomic problem in China is the lack of full-employment which was present from 1979. This is a result of the falling demand of Chinese exports by other nations. The Chinese Communist Party should in some way reduce the nation's dependency on foreign demand from other nations, and base itself more on domestic production, because in cases of lack of export demand, China will always face troubles due to unemployment.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The social and economic costs can be seen with the process that is taking place due to the rise in unemployment. That is the urban to rural migration, where the Chinese people, because of rising unemployment, move back to their country homes in order to work on agriculture, leaving the factories. But once they go back to their homes, they find themselves in the same situation in which they were before, where the agriculture did not satisfy their needs of income. Apart from this, the agricultural sector will not be able to sustain the millions of people which are coming back in the countryside. Thus the urban unemployment will shrink because of the lack of people present, while the rural unemployment will significantly rise.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian model states that without an intervention from the government, the recession that China is facing will not increase on its own due to huge increase in unemployment. The Classical model instead states that the economy will eventually come to a balance on its own, and that the recession will end if the economy is given time, because of the million of people whom are out of work, the low prices, and people's acceptance of lower wages for work. This latter model is defined as false, as it was already seen in the Great Depression, and only a Keynesian model will be effective in bringing the Chinese economy back to a 0% unemployment level. So the Chinese government should spend its money in creating jobs in private enterprises, produce goods, services and infrastructures in order to fuel the Chinese economy with domestic and not foreign demand.

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  80. Mitchell_Broughtonon 07 Mar 2011 at 4:47 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    In my opinion, China's most worrying macroeconomic problem is their unemployment. Not only does the national GDP decrease because of reduced productivity, but the government must also spend money to attempt to help those without jobs to survive. Another problem unemployment causes is an increased crime rate. This is because many people will not receive adequate money from the government, and are forced to steal in order to survive. One reason unemployment is so bad for the country of China is because it is so new to them. If they consistently struggled with unemployment, they may have particular strategies of combatting it; however, if it is completely new to them, it will take experimentation to come up with a solution.

    Unemployment is also most affected by the decrease in demand for China's products. China's economy relies heavily on exports, and thus if their exports are no longer wanted, they will have to lay off employees in order to continue to make money.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    As stated in the previous question, unemployment causes a decrease in productivity of the country, as well as the government having to pay unemployed citizens money, and an increased crime rate. It is very important for the government to combat unemployment because it will only get worse. The longer people are unemployed, the harder it is for them to find jobs. This is because they lose their skills over time and become less and less motivated, and more reliant on government subsidies.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The main difference between the Keynesian theory and the Classical theory is that the Keynesian theory believes the government should interfere in order to repair the company will the Classical theory believes the market will "self-correct". This article seems to support the Keynesian theory stating that with the West in a recession as well, the likelihood of the economy fixing itself is unlikely.

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  81. Mitchell_Broughtonon 07 Mar 2011 at 4:56 pm

    @Deniz

    I agree with you that unemployment is the most important factor. In the article is says that in 1979 full-employment was achieved; however, can we really view this as full employment? Since employment is defined as anybody who's willing and able to work has possible work, and the government supplied state jobs to anybody who wants them, this is how they can say they have full employment. This does not take into account the amount of money the workers get paid and the conditions of the job. If the workers get paid a dollar an hour, and are risking their lives every day, can we classify this as full-employment?

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  82. Michael Mayeron 07 Mar 2011 at 10:14 pm

    China’s most worrying macroeconomic problem is currently recession. This is because the recession is at the root of the rest of China’s problems. The recession causes inflation, inflation leads to a fall in demand for China’s exports, this fall leads to unemployment, the increased unemployment leads to a change in income distribution, and the list goes on.

    Falling demand for China’s exports affects unemployment the most.

    As an economic cost of the rising unemployment, the economy is worsened by unemployment and the GDP goes down. Socially, life is worsened because people have less money in general. It is important for the government to combat the unemployment because it would level out the decrease in average income. It would bring back balance and promote urban development.

    Different graphs show different explanations for falls in Aggregate Demands. For the Classical models, the shift in decrease in demand and supply are shown whereas in Keynesian model, only a shift in demand is shown.

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  83. Michael Mayeron 07 Mar 2011 at 10:17 pm

    Reply to Mitchell:

    I agree that unemployment is very important, but I think that recession causes unemployment and therefore makes recession the most important one. However, your reasons for unemployment being important are good. The crime rate point is a good one, and that is sure to happen. People who don't have a job but need money will sometimes resort to crime.

    -Michael

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  84. Deepa_Johnon 08 Mar 2011 at 3:38 am

    •What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    In my opinion the most worrying macroeconomic problem currently in China is unemployment. As we read from the article that the demand for Chinese exports is falling as unemployment is increasing and income is falling. In China a huge amount of deal lies in the exporting of products and if exporting reduces then there will be a huge loss in products. Unemployment does lead to crime as people need to support their families and themselves come what may.

    •What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Unemployment causes low income in countries. Families will have less money for daily items. The economy will have low production rates. Unemployment in the long run makes it harder to get jobs. Crime rate increases since people still need money or daily needs.

    •Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    Keynesians believe to fix unemployment. They believe that unemployment will cause a lot of problems like people will not be able to afford basic needs which are necessary and this needs government intervention. Whereas in Classical models they believe that unemployment will resolve its problem on its own and government intervention is not needed as workers will get used to the fact that unemployment is part of everyone’s life and they will have to accept it.

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  85. Deepa_Johnon 08 Mar 2011 at 3:42 am

    Reply to Michael:

    I agree with all your points Michael but in your second question I notices that you said it promotes urban development which is a good point

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  86. Noah Flanikenon 08 Mar 2011 at 3:45 am

    1) What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s most worrying macroeconomic problem currently is the recession since this is at the root of their problems. The macroeconomic problems, as a whole, form a line of dominoes. The recession in the rest of the world is what set off most of China’s problems. The recession has led to trade imbalance where countries can no longer import from China as much, an industry China deeply relies on. This trade imbalance has then led to a fall in aggregate demand for products made in China, which has led to an increased level of unemployment in China. Falling demand for China’s exports has therefore increased the unemployment rate in China.

    2) What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Two social costs of rising unemployment are lower standards of living and more disturbances and uproars against the government. Lower standards of living are derived from a lower national income in China. Lower standards of living mean poorer health, nutrition, and quality of life in general. Also when more people are unemployed more people will be against the government and the way they are leading the government. This will lead to more uproars and riots with people fighting the government.

    Economic costs of rising unemployment are a decrease in output in the economy and a decrease in tax revenue. Anyone who is unemployed is capable of producing but is not able to find a job, therefore they are almost like dead weight, doing nothing but pulling the national income down. Also since they are not working they may pay no taxes or fewer taxes. This means that the government has less to spend on health, education, etc. but more to spend on unemployment benefits. Basically, unemployed people are not producing but still collecting money from the economy.

    3) Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian models show that government intervention is needed to reduce unemployment in Aggregate Demand. Keynesian economists would argue that to reduce unemployment during and after a fall in Aggregate Demand or a recession, governments must increase spending, create new income, etc. Without these incentives, people are unlikely to increase spending in order to reduce unemployment due to a lack of confidence in the economy.

    The Classical models give a different explanation of what will happen to unemployment after a fall in Aggregate Demand. Classical economists argue that after a fall in aggregate demand, unemployment will self-correct/decrease without any government intervention. They argue that price levels will fall with unemployment and because million will be without a job, people will accept more jobs paying lower wages. This will restore full-employment at a new, lower price level.

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  87. Noah Flanikenon 08 Mar 2011 at 3:57 am

    @Mitchell (with response to your comment on Deniz's post)

    I think we can still say there was full employment. I am not sure if the wage a person is payed will affect their status as employed or unemployed. Yes, if people are being payed $1 they may not have great living conditions but this does not mean that they are unemployed. So I would say that if someone is working during the day to make a living, despite the income, they are employed.

    Noah

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  88. Javier_Alberite_Carron 08 Mar 2011 at 10:12 pm

    Javier_Alberite_Carreno

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    In my opinion what affects most the chinese economy is the inflation that they have experienced over the past years together with a recession that has made the salaries drop dramatically leaving a spot between the inflated prices and the salaries. And the reduction of demand for Chinese products is affecting seriously the living standards for citizens, as the unemployment is rising and then the people don't have money to pay for basic goods.

    Mainly the costs affect to the global nation by two ways, socially, with the reduction of living standards and the devaluation for products and also by an economic approach reducing the incomes of the government by taxes, together with a reduction of the global output making the GDP index fall. The government should offer some subsidies in order to favorise the employment of people, together with developing an agressive policy of encouragement of exports with sales for the countries interested in investing on China.

    Keynesian economist would promote and intervention of the government in order to correct the situation as for them a self-correction is very unlikely to happen, while the classic economists would focus on some measures to promote the productive potentials since they believe in a self-correction of the labour market.

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  89. Javier_Alberite_Carron 08 Mar 2011 at 10:13 pm

    Reply to Michael Meyer:

    I agree with you with your measure of encouragement of urban development, reducing then the reverse migrations that are taking place nowadays.

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  90. Manuel Ron 08 Mar 2011 at 11:52 pm

    1. The main problem China is facing is unemployment, due to the decrease of demand of Chinese exports coming from the crisis that affects western countries, Chinas’ products main buyers.

    2. Unemployment will always have negative consequences. The main one that resumes all of them is the costs that the government will have to face (as subsidies, etc) in order to ensure a way of live (though it is a poor one) so vandalism or desperate actions do not rise.

    3. Keynesians insists on the need of government investing in order to create jobs, to increase the demand of labor force. Instead classicists would say that the market will fix itself although it means that people will be working on worse situations in order to make their offers attractive for employers

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  91. Manuel Ron 08 Mar 2011 at 11:56 pm

    Dear Javier_Alberite_Carreno

    Javier, I agree that all of those problems afects Chinese economy, my question is: don´t all this problems bring us to the same point, unemployment?

    Manuel R

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  92. Won_Woo_Choion 09 Mar 2011 at 2:51 am

    • What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    I think the sector which is affected the most would be the unemployment aspect of the situation. This is because the Chinese economy is overly dependent on its manufactured exports which are highly vulnerable to change in foreign demand. When sales decrease, profits will decrease, and firms will have to lay down workers, leading to unemployment. And with a large chunk of the economy on the sector, the scale of unemployment will be large as well.

    • What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Unemployment entails social and economic costs for the economy concerned. Some of the social costs for high unemployment rates is that it destabilizes government authority for autocratic nations while for democratic nations it decreases public approval rates of the current administration (or worse, deteriorates trust in the government itself) Some of the economic costs is that because capable, productive human capital is left unused – and the sheer lack of quantity of human capital in the economy cannot be in any way beneficial for the overall growth of the economy. Also, unemployment robs people of income and therefore public consumption of products decreases – which leads to another problem that the government needs to subsidize these people to ensure their survival – which means that tax is being spent on these people while they are not paying any – adding on to government deficits.

    • Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian theory urges that the government take major actions to remedy the stagnation that is happening in the market through deficit spending. While the classical economists believe in the self-corrective nature of the economy that by simply pursuing a policy of laissez-faire and leaving everything up to the market to fix would correct the situation.

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  93. Won_Woo_Choion 09 Mar 2011 at 4:11 am

    @Manuel R

    In your response for #2, you said that unemployment always has negative consequences. However, without unemployment, the government will have more severe consequences to face because in order to eradicate unemployment, the government will have to ensure that there is a job for every man which will lead to vagrancy and absenteeism as it had in many communist nations during the Cold War.

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  94. Eleonora_Bisioon 09 Mar 2011 at 11:45 am

    • What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s most worrying macroeconomic problem is unemployment because it eventually causes all the other difficulties such as trade imbalance, recession and unequal income distribution. The one that is most affected by the falling demand for China’s exports is again unemployment because since Chinese market was majorly based on the export market as the demand of Chinese products fell, firms had to reduce the production of goods therefore reducing the number of workers.

    • What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The social costs that an increase in the rate of unemployment may have may be: the percentage of theft may increase, people may become seriously depressed up to the point that they may commit suicide and therefore raising the percentage of suicide in the country, the majority of people would not be able to afford education for their children consequently raising the level of illiteracy that may eventually result in even an increase in unemployment in the future due to the lack of skills. The government therefore has to intervene by providing money to jobless people to minimize all these catastrophic consequences that unemployment may cause on the society. Moreover, it is essential for government to combat it in order to prevent that the rate of unemployment will spread even more, causing even more serious outcomes.

    • Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    Keynesian model argues that the government intervention in the time of recession is “needed to supplant the fall in private spending, and create new income, spending, and economic growth”. This solution would therefore increase the money in the flow model therefore leading to an overall economic growth. Whereas the Classical model believes that in a time of crises the economy should “self-correct”. This may be possible because since prices are lower and the rate of unemployment is very high workers may be willing to accept to work at lower wages “encouraging firms to increase their employment of labor, shifting aggregate supply outward and ultimately restoring full-employment at a new, lower price level than before the downturn began”.

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  95. Jackson_Moteon 09 Mar 2011 at 6:00 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China's most worrying macroeconomic problem is currently unemployment. This is troubling for China because the majority of their economy relies on exports. If other countries who have their production based in China see that unemployment is rising, they may remove their factories from China.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The social costs are that the unemployed workers do not have work therefore they will have nothing to do. This could lead to robbery and other types of crime. Economically, longterm unemployment is bad because the government has to pay unemployment benefits which can cause unemployed workers not to go back to work.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    As seen in the picture on this week's lessons, Keynesians would argue that the government must do something to correct the economic problems such as stimulating the economy in some way. Classical economists would argue that the economy should self-correct and would require little to no government intervention. They believe that correcting the economy only makes its weaker.

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  96. Jackson_Moteon 09 Mar 2011 at 6:01 pm

    @Eleonora_Bisio

    I agree with you on pretty much everything Eleonora. However isn't it a swift assumption that people will suicide if they do not find jobs and slip into depression? The rate of crime would most definitely be higher though if there was many more unemployed workers.

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  97. Jaewan hongon 10 Mar 2011 at 4:06 am

    1.According to the passage above, china’s most worrying macroeconomic problem is unemployment because it seems like it affects the demand influencing China’s export the most. Therefore, this will make the AD curve shift to left. The foreign demand has fell significantly and this led many Chinese labours lose their jobs. This became a ‘push factor’ from urban area so many people moved back to their homeland rural area. But they face the problem of unemployment again because that was the reason why they moved away from their homeland.

    2.The social and economic costs of rising unemployment are low wages and low living standard for social costs and low GDP, loss of output into the market, loss of tax revenue, and loss of profits for economic costs. All governments combat these costs because they bring negative effects to the economy. If those costs are paid constantly, then that means that more and more people become unemployment and price does not stay stable. Therefore it is important for a government to combat them in order to achieve a higher living standard and better social welfare.

    3.According to my study of Keynesian theory, Keynesian theory insists that economy is unable to recover by itself so government should intervene the free market to stimulate the economy and reduce unemployment. Classic models claims that the economy needs to self-correct in times of economic unrest and employment will rise if given time.

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  98. Jaewan hongon 10 Mar 2011 at 4:11 am

    @Deepa

    i agree that unemployment causes low income and this will bring many problems to a country. But there are many other economic costs and social costs beside unemployment. But i know that unemployment is the most important factor

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  99. Frederico Carvalhoon 11 Mar 2011 at 1:29 pm

    1.What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    In this context it seems that the iggest problem China is facing, is unemployment; and it is this factor that is affected most by the fall in demand for exports. This is because if less exports are wanted less suppluy is needed, with less supply needed you need less workers, thus more unemployment. Even so not discussed in the article ecession might become a problem, due to the decrease in employment causing less people to have purchasing power and this leading to a cycle of non-profits and severe losses.

    2.What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The main economic cost of rising unemployment is that there is a cut back in production seeing as less people are producing goods, howevere there is also the fact that the government loses money that goes into subsidies, and also gains less revenue from tax money, as unemployed people cannot pay taxes. Also there is little economic activity and so the market starts to "freeze". Socially it affects the unemployed people and their respective families, as they are usually unable to lead the same quality of lifestyle of before, so non-essential goods such as videogames and movies will have to go and the food purchased is less diverse which leads to health problems. Furthermore unemployment can cause depression which mught cause an unwillingness to work; and this leads to further unemployment.

    3.Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian theory will say that it is up to the government and people to get the economy going again, as it will not pick itself up. Whilst Classical theory would suggest that the economy would regenerat on its own and that in a way it will all be fine.

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  100. Frederico Carvalhoon 11 Mar 2011 at 1:39 pm

    Re: Jackson

    I agree with all your points, as they are simila to mine; even so I noted something interesting about your response to the second question. If you consider that chinese culture and the fact that some of its workers are still influenced by the Mao era, then you will see, I think, that the cultural values that the workers have would keep them from robbing and commiting crimes (obviously this is a bit of a generalisation). Thus there might be other problems such as outcasting and so on, due to the culture and social atmosphere of the nation in question, China. Although your argument is generally valid, you might consider culture as a factor in your aarguments.

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  101. Fabian_MontoyaFendton 28 Apr 2011 at 3:01 am

    In this context it seems that the biggest problem China is facing, is unemployment. It is this factor that is affected most by the fall in demand for exports. This is can be translated into a decrease in supply because if less exports are wanted less suppluy is needed. Consequently less workers are needed, hence more unemployment.

    The main economic cost of rising unemployment is that there is a cut back in production seeing as less people are producing goods, howevere there is also the fact that the government gains less revenue from tax money.Socially it affects the unemployed people and their families, as they are unable to live in the same style as before, non-essential goods will not be bought.

    The Keynesian theory will say that it is up to the government and people (intervention) to get the economy going again, as it will not pick itself up. Whilst Classical theory would suggest that the economy would regenerate on its own and that in a way it will all be fine.

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  102. Nicole_Sonderegger_Non 28 Apr 2011 at 6:11 pm

    •What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s most worrying macroeconomic problem is currently unemployment, which could eventually lead to a recession. Falling demand for Chinese exports affects employment the most because of China’s dependency on foreign demand to sustain and push its growth. As demand falls, firms profits fall and therefore they have to fire workers as their wages are fairly fixed and therefore cannot be easily lowered.

    •What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Unemployment causes the economy to lose output because GDP is lower than it could be as the economy is not functioning at full employment. Unemployment also causes loss of tax revenue as the unemployed do not pay taxes to the government. The government has to increase its expenditure in order to maintain the unemployed. Firms also lose profits due to unemployment because of the theory that with more people working, production increases, and profits should rise. The unemployed has a smaller disposable income, and hence their living standards decline. Greater unemployment also often causes an increase in crime rate, a worsening of health, and lower life expectancy.

    •Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian model says that if aggregate demand falls, unemployment will rise because spending and investment will decline. It claims that it is necessary that the government steps in to stimulate demand through expansionary fiscal and monetary policies to create more income, spending and promote economic growth. The Classical model claims that in the short run, unemployment would rise due to a drop in aggregate demand. However, the economy will soon self correct as prices are lower and many are already out of work, those working will be willing to accept lower wages. This encourages firm to increase employment levels, which would shift aggregate supply outward and restore full employment at a price level lower than the one before.

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  103. Nicole_Sonderegger_Non 28 Apr 2011 at 6:17 pm

    @Jackson_Mote

    The social costs of unemployment you mentioned are definitely very important, and are often seen in poor, underdeveloped countries where unemployment rates are very high. Also remember though, that one of the key economic effects is that output declines as with less workers, the total output of the economy decreases.

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  104. Daniella_Majlufon 30 Apr 2011 at 6:13 pm

    1. China’s most worrying macroeconomic problem currently is unemployment, since its years of full employment are over, according to this article. This unemployment might result in a recession, which should be also a worry that China has. Falling demand for Chinese exports affects the rate of employment the most because exports might decrease, therefore supply is lower and less employees are needed, causing unemployment.

    2. The social and economic costs of rising unemployment are that there is less production and fewer workers. This unemployment results in the government earning less revenue because there are fewer taxes, and the government would also have to increase its expenditure to maintain the unemployed people. Also, output decreases, as well as the profits, since the rate of employment is not so high as it was before. These unemployed people and their families would not be able to buy goods that are not necessary. Their health might worsen, too, as well as the social security in the country. It is very important for the government to combat it because if not, all these consequences stated above will arise, and the country will suffer a lot since they won’t have the same privileges that they had before and a disastrous recession might occur if the government doesn’t try to fix this fast enough to prevent such a terrible recession.

    3. The Keynesian and the Classical models have differences in their explanation of what will happen to unemployment after a fall in AD. The Keynesian model will state that the government (through fiscal and monetary policies) and the people in the country should try to fix all this because if nothing is done, then the economy won’t be able to get going by itself, and economic growth will keep on declining even more. Also, since AD falls, the Keynesian models states that employment will also fall due to the decline in investment and spending. On the other hand, the Classical model states that there is no use in the government and the people intervening in the economy because it will recuperate on its own. It also states that employment will be lower but soon enough it will be high again since prices would decrease. Full demand will soon be restored, according to this model.

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  105. Daniella_Majlufon 30 Apr 2011 at 6:15 pm

    @Fabian_MontoyaFendt

    All your answers are great. I liked the second especially since you explained very well the social and economic costs of rising unemployment and how families would not be able to live in the same style as they lived before because of the unemployment of these people.

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  106. Mehmet_Mert_Sumaon 01 May 2011 at 12:34 pm

    1) Unemployment is the most worrying problem of China. The reason of the surge in unemployment rate is due to the fall in aggregate demand for China production after the global recession. The firms have been laying-off their workers because they cannot find global consumers who demand Chinese exports and they need to reduce their production costs.

    2) GDP is going to fall after in the increase in unemployment rate. Loss of tax revenue will be seen because the unemployed does not pay taxes. The government will increase its expenditures to support the unemployed. Living standards would fall. Lower demand will lead to a fall in productivity. the government wants to prevent the increase in unemployment rate to evade these consequences.

    3) Neo-classical view is of the opinion that the economy will self-correct itself and unemployment rate will fall. There is no need for government intervention. The fall in aggregate demand will force the prices downwards. The unemployed is going to accept lower wages.

    Keynesians think that the government intervention is necessary because the economy cannot fix itself because there will be lack of business and consumer confidence in the economy. So, the unemployment rate will not be able to fall. Expansionary fiscal and monetary policies and supply-side policies are necessary to encourage investment and consumption.

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  107. Mehmet_Mert_Sumaon 01 May 2011 at 12:37 pm

    @Daniella_Majluf it is right that high unemployment leads to social security issues, as well. The unemployed would cause serious problem into the society because of their desperate situations.

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  108. Merve_Akpinaron 02 May 2011 at 7:29 pm

    The problems take place in China is like a chain reaction. One triggers the other one. Because of the inflation, prices get high and it makes some companies to fire some workers. That makes aggregate demand shift left. Because of that it is possible to observe a recession in the long run. As I said before these impacts of the inflation are all connected to each other like a chain. That is why it is hard to choose the worst impact of it. But I think rise in unemployment is the worst one in terms of social and economic cost of that.

    When we look at the social cost of unemployment rate, first thing we can say about it would be the lower wages. Under the normal circumstances, it was easy to rebel it (I mean you could have change your work if you did not like it), but in today’s Chinese world it is not like that. Since the existence of unemployment cannot be denied, people are afraid to change their jobs because of the fewer wages. When we look at the economic cost of unemployment, we can say that it directly affects the real GDP of the country. Because the government will get less taxes and less profits, of course it will affect the GDP.

    The Keynesian and the Classical models have different ideas about the inflation that takes place in China. According to the Keynesian theory, the economy is not able to pull through by itself and that the government should interfere and support stimulate the economy and reduce unemployment. But the Classical believes the “laissez-faire” which is self correction. Firstly it can be perceived like communism but actually it is rebuilding the economy.

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  109. Merve_Akpinaron 02 May 2011 at 7:34 pm

    @Mehmet_Mert_Suma

    I agree with you Mert. I especially liked your third answer. Actually I think both model can be helpful to rebuild Chinese economy. But about expansionary policies such as monetary or fiscal is definitely sine qua non.

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  110. mboadeon 03 May 2011 at 1:53 am

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s most worrying macroeconomic problem currently is the unemployment, which is affecting the falling of the demand in China’s exportations.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The social cost of rising unemployment and that the government should combat are health and education. In the side of economic cost is the slow down of the economic growth of the country.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian models says that the unemployment is cause by the rigi salaries that do not adjust to the current economy situation. In the case of the Classical they believe that the salaries are adjust so people move to those sectors

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  111. mboadeon 03 May 2011 at 1:55 am

    Hi Mehmet_Mert_Sumaon, I agree with you living standars of the Chinese workers will fall and the government should intervene so this does not happen in the economy because it could affect the aggregate demand of the economy.

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  112. Haleigh_Eppleron 03 May 2011 at 4:14 am

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China's most concerning macroeconomic problem is trade imbalance. Trade imbalance has resulted in the problems of unemployment, deflation, and recession. The chinese economy is based solely off foreign demand. The factors that affect foreign demand are not controlled by the chinese government making stimulus difficult because the government cannot return demand the way it was. The chinese need to learn to consume more domestic goods and to have a more better trade balance. This means the economic woes of other countries will have a limited effect on the woes of the chinese economy. The trade imbalance resulted in unemployment following the recession in the west. The unemployment has resulted in deflation due to decreased spending as well as recession because as people loose their jobs consumer expectations are lowered furthering their unwillingness to spend.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The social costs of rising unemployment are a decreased standard of living for the average chinese citizen. This means that the people are unable to live in the manner in which they were accustomed and are looking for other means to be able to return. The problem is that there are no other means due to the extremely high unemployment rates. This is not a situation where people are voluntarily unemployed. The government needs to combat unemployment so that economic development can occur but also so that the people can spend and cause economic growth. The economy cannot grow when there are high levels of unemployment because people are more apt to save due to their lack of income. Increased employment results in increased economic growth.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian model requires the government to intervene through spending in order to stimulate the economy. It believes that the economy cannot bring itself out of the unemployment without help because of the cyclical effect of unemployment, savings, consumer expectations and just an overall lack of spending to revive the economy. This means the recession will grow worse rather than improve. The classical model believes the economy to be a self correcting entity in which the economy will recover after a period of unemployed and possibly stagflation. However, the eventually the consumer will be able to spend enough to result in economic recovery.

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  113. tiffany_williamon 03 May 2011 at 6:16 am

    1.What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    2.What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    3.Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    ——————————————————————————–

    They are concern about the unemployment since it will affect the demand for China’s exports, and this will cause the AD shift to the left.

    The social costs will be the people will loose their skills since there has been a gap of time where they are not employed and slowly they will loose interest in working as well. For the economy, there will be a rise in government’s costs because beneficial rewards for the unemployed will have to be payed still. This is important so that unemployed people in the country will decrease and help in the economic growth.

    The Keynesian model shows us that the economy can’t help itself about the unemployment situation. It needs govenrment intervene to maintain the umployment in th economy. While the classical model, the economy can help to reduce the unemployed.

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  114. tiffany_williamon 03 May 2011 at 7:16 am

    @# Mehmet_Mert_Suma

    good job Mehmet :)

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  115. Dogan_Can_Ozcanon 03 May 2011 at 5:49 pm

    1-)What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    I think the most worrying problem of China is unemployement. After global recession a decreasing in AD appeared. Nowadays they have less exports because of the less demand for Chinese goods. China supplies less so they don't need more employees. Because if there are more employees the wage that the firm is going to pay for their workers will be more. Because of this there are a lot of people who doesn't have a job. As a result, unemployement is the most worrying problem for China.

    2-)What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    As I said in the first question demand decreased so as a result of this supply decreased, too. This means China has less production. Also we can say that GDP will decrease and people's living standards will decrease, too. As an example to this I can say their health and education problems will appear. For all of these problems government will want to find some solutions and government will spend more money so this means expenditure will increase. If government doesn't combat with all of these problems they can have both economic and social problems and these problems can affect China very much.

    3-)Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    First I want to start with Neo-classical model. If we consider this model we can see that Chinese government will self-correct itself and the problems which I explained in second question will disappear. The prices will fall because AD falls, too. Secondly, if we look from the side of the Keynesians we can see that they think like the just opposite of Neo-classical. Government can't self-correct itself and unemployement rate will not decrease. Also Keynesians think that government intervention is necessary.

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  116. Dogan_Can_Ozcanon 03 May 2011 at 5:50 pm

    @tiffany

    I liked your opinions but for the 3rd question you could do better :)

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  117. Ece_Erdemon 04 May 2011 at 7:53 am

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    ________________________________________

    1. I believe that China’s most worrying macroeconomic problem is unemployement. There is a huge rate of unemployement because the demand from the countries for the goods in China, especially in West is decreasing. The production is also falling, so the firms are not able to employ people. When the people lose their jobs or they cannot ifnd jobs in big cities, they tend to go to the rural sides of the country and work there, contuining their life with lower wages, but the cost of living is also low, so this is a lot easier for them to do so.

    2. Loss of employers basically means a huge loss in productivity, and also the output. When the number of the workers decrease, then this means that the output they are creating will also be decreased. This will affect the economy badly. This will increase the government spending because the government will have to pay for the people who are unemployed. This will also touch upon a problem taxes. The people won’t be able to pay that much taxes and this is going to make the economy suffer. The productivity will also be effected from it.

    3. In the Neo-Classical model, the workers will be accepting the lower wages offered for them because the unemployement rate will be so high that the workers will have to accept them. On the othe rhand, in the Keynesian model, now the unemployement rate is so high people will not be able to afford the goods and services so fewer of them will be able to pay for it. So that the government will have to intervine.

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  118. Ece_Erdemon 04 May 2011 at 7:54 am

    @mehmet_mert_Suma

    I agree with you in your 3rd answer. In Keynesian model the government intervention is needed.

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  119. Ece_Erdemon 04 May 2011 at 7:58 am

    @Daniella_Majluf

    I agree with you, the unemployement is also effecting the social security because of lack of money.

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  120. Behiye_Ilkay_Dasdemion 04 May 2011 at 10:04 am

    The most worrying problem currently is the unemployment. Because of the global recession, the aggregate demand for Chinese products decreased; led to an increase in unemployment. That is why, China's exports are affected badly.

    Rise in unemployment may cause people to lose self-esteem and to tend to violence and crime because the income of the families would fall. Also, some problems in the family can be seen. Economically, real GDP and aggregate demand fall. This would affect the output of the country, so the government wants to overcome unemployment.

    Keynes states that the government intervention is essential in order to overcome unemployment. The government may apply some fiscal, monetary and supply-side policies because the Keynesian theory states that the economy would not recover itself.

    The Classical models state that the economy would recover itself. This will happen when the people would accept to have jobs at lower wages after the prices rises.

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  121. Behiye_Ilkay_Dasdemion 04 May 2011 at 10:11 am

    Hi Ece,

    I agree with your second answer; however, the unemployment also has some social effects on people.

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  122. Bryan_DiLauraon 04 May 2011 at 10:18 pm

    -What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    I think that China's most worrying macroeconomic problem is its unemployment rate, as it contributes in some way to a lot of their other problems. If no one is working, then there is a larger gap in wealth distribution, and in a way, income distribution as well, because people are willing to work at a lower wage (theoretically). Inflation has to do with it as well, as firms seem to be needing to cut costs, and raise prices, which can be done by laying people off, and raising prices. Falling demand for China's exports affects the unemployment rate a lot, as it means there is less demand, so the need for as many people is much lower.

    -What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    There are very significant social and economic costs to rising unemployment. The first is, there is often some sort of social security system set up in a country, that way people aren't just dying. The more people that are collecting on this, then the more economic strain is inflicted. There is also the social cost of, unemployed people are often a hindrance to society. They can beg on streets, cause riots, and overall just not help in the progression of not only the economy, but also the country as a whole. This is why it is so important for the government to combat it.

    -Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    Keynesian economists believe that in times of unemployment, the economy will continue to go on a downward spiral until there is some sort of major government intervention. This is partially attributed to the downwardly sticky nature of wages, and people's unwillingness to "settle for less." The neo-classical model shows that the economy will eventually self-correct itself out of unemployment. This is because in the long run, people will theoretically accept that they need to take a cut in pay if they want to keep working. This will cause them to go back to work, eventually leading back to full employment.

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  123. Bryan_DiLauraon 04 May 2011 at 10:21 pm

    @Dogan_Can_Ozcan

    I think that it is interesting that you say education problems will arise if there is widespread unemployment. This is true, I believe, as when someone is out of work, they lose skills that they once had, and leads to a eventual "dumbing down" of the population.

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  124. Asucan_Odcikinon 07 May 2011 at 3:15 pm

    1)What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    I think China’s most worrying macroeconomic problem is unemployment currently. The global recession affected China because as we all know China’s economy is mostly consisting of exports. So when the demand for Chinese exports decrease due to global recession, firms lay off their workers because there is no demand. So unemployment occurs.

    2)What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    When unemployment increases we all know that there will be more people who are not working which means not earning money on a regular base. So that people start to consume less, this decreases the demand in the market. Also there will be loss of tax revenue as unemployed people do not pay taxes to the government. These all factors cause GDP to fall. Most importantly unemployment creates fall in productivity which government does not want. So the government should balance unemployment and combat it in order to be better about economically and continue its economic growth. Moreover, in the society there will be more people who have psychological problems because they cannot find a job. That’s why there can be more insecure societies as crimes and gangs can increase due to unemployment. So governments should take actions to prevent high level of unemployment in order to provide the best social and secure conditions for the societies.

    3)Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    According to classical economy there is no need for government intervention. There is something described as economy can self-correct itself if there is a problem like unemployment. According to the view of neo classical economists, the fall in aggregate demand will drive prices down and also unemployed people accept lower wages so that the economic problem fixes itself. On the other hand, according to Keynesian point of view there need to be government intervention. So that there are different policies like, monetary and fiscal policies in which government is the key point.

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  125. Asucan_Odcikinon 07 May 2011 at 3:22 pm

    @Merve Akp?nar

    Hey Merve,

    I really liked your comments on the first question. Especially calling China's current situation as chain reaction is a very good expression. I think referring to inflation while explaining the unemployment situation of China is really logical.

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  126. Nesibe Z?rzak?ranon 07 May 2011 at 10:50 pm

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    The problem of China is umemployment. It is due to a decrease in foreign demand therefore decrease in AD. Foreign countries suffer from recession and with respect to this, they demand at less amount. This results in less production in China which leads unemployment. Also umemployed people have to go to rural areas in order to find more job opportunities.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    From social point of view, people will sure be discouraged and they will lose their confidence that will decrease AD; eventually GDP. Also people who are already working will have less motivation due to low wages; that will lead to inefficiency. Therefore, when there is less output or production, GDP is decreasing and economy is not doing well. On another side, people umemployed do not pay taxes and eventually government revenue is less. All in all, if this continues the crisis is inevitable.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    Keynesian theory believes that spending in the economy is not likely to increase because of increase in umemployment rate and decrease in consumer confidence to demand and investment confidence. Therefore, government intervention is needed to create a new way of spending. Neo-classical model believes that, economy needs time and in time it will "self-correct". Eventually with the fall in AD, prices will fall down and people will have to accept the lower wages.

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  127. Dilan_Guneson 08 May 2011 at 2:09 pm

    1.What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s most worriying macroeconomic problem is unemployment. From the article we can understand that the demand from the foreign countries decreased to Chinese goods. Because of the falling demand the production affected so workers lost their jobs and there came the problem of unemployment.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Because of the unemployment workers prefered to move rural sides of the country for living cheaper. Therefore, the living standards got lower. Because of the unemployment loads of people dont have money to spend even though they live in a rural place where opportunities expected to be cheaper. Government should combat with unemployment and try to obtain work oppotunities. For this government should increase its government intervention and create income opportunities.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    Keynesian and Classical models are having different perspectives for this unemployment issue. The Keynesian model represents that there should be a government intervention for increasing the demand and by the increase in aggregate demand there will be more income opportunities and a decrease unemployment. On the other hand, the Classical model represents that tehre should not be any government intervention because it is believed as economy will be having the process of self-correction.

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  128. Dilan_Guneson 08 May 2011 at 2:11 pm

    To Nesibe Z?rzak?ran

    Hi Nesibe,

    I liked your ideas and actually I like the second answer where you used confidence and willingness of working for a low wage.

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  129. tomoya_sekineon 09 May 2011 at 6:46 pm

    Even though China has problems in many of the macroeconomic problem listed above, China’s most worrying macroeconomic problem right now would be unemployment as written and identified in the article above numerous times. The falling demand for China’s exports is increasing the unemployment rate in China. We can also see a problem in recession (as there is a decrease in China’s exports, and thus causing a decrease in trade as well).

    I think the main social cost outlined in this article would be the rural to urban migration that is happening due to unemployment. It is stated in the article that nearly 300 million Chinese people have left the countryside to find jobs. Then it is later stated, “more than 20m rural migrant workers in China have lost their jobs and returned home”. The economic cost of rising unemployment is simply the decrease in Chinese exports (lower real output) as well as unemployment itself, people are willing to work but cannot find jobs. It is important for the government to combat these problems to stabilize the economy and keep things in moderation.

    The Keynesian model explain that when there is a fall in aggregate demand caused by unemployment, government intervention is needed to restore private spending, income, spending and economic growth. The neo-classical model explains that the economy should “self-correct” and that no government intervention is needed.

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  130. Ozge_Elif_Ozeron 09 May 2011 at 6:51 pm

    1- Most worrying macroeconomic problem in China is unemployment. Since foreign people do not choose to consume Chinese product, the demand of those products are falling and it results in people losing their jobs.

    2- When people loose their jobs, they start to move rural areas in which living conditions are lower and cheaper. This event can be seen as a social cost. It is important for governments to combat it because it can result in lowering the life conditions of the urban too.

    3- In the Keynesian model, economists believe that the government should intervene in order to increase the demand, because people will not demand more since there will be a lot of people who are not working so it is useless to wait aggragate demand to increase by itself. Classical Model believes that in a situation like that there is no need for an intervention because economy will correct itself.

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  131. Ozge_Elif_Ozeron 09 May 2011 at 6:52 pm

    Hi Do?an Can, ? think it is good that you said unemployment can have bad affects on education too but it is a long long run result i think.

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  132. tomoya_sekineon 09 May 2011 at 6:56 pm

    To: Dogan_Can_Ozcan

    I strongly agree with the answer you gave for the second question and I really like your example of healthcare (not quite sure if it would affect education a whole lot though). It would be a big problem in China, especially when they have a massive population and if unemployment keeps increasing, it would hurt the medical bill greatly.

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  133. Huanni_Wuon 10 May 2011 at 11:37 am

    1.What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    2011, now it's the time of soaring inflation due to high food price, high hosuing cost, as well as rapidly increasing demand. The fall for China's expoerts affect recession and unemployment the most since export industry contributes large amount to China's GDP. The fall of export demand would drag down aggregate demand by large amount. Consequently, there would be high unemployment.

    2.What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Unemployment trigger social unrest and it is a political threat to the Communist Party's rule. Economically it would drag down the standard of living, increase inequality and drag down economic growth since government has to spend large amount of money to combat unemployment instead of investing in other development programme. The government needs to satisfy its people in order to survive.

    3.Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    Keynesians suggest that the fall in Aggregate demand brings down total output therefore they call for government intervene. However, classical models suggest that the market is able to "self-correct" after a fall in AD. They argue for a reduce of government intervene.

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  134. Huanni_Wuon 10 May 2011 at 11:44 am

    @Nesibe Z?rzak?ran,

    I don't think currenctly the most worrying problem for China is unemployment. But unemployment might be a serious problem for China in the future. Because Chinese is losing competitiveness in the low-end industry internationally due to its rapid economic growth…

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  135. Melis_Selin_Tatlicanon 11 May 2011 at 9:06 am

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    The most worrying macroeconomic problem currently is recession and unemployment because aggregate demand for products decreased. Because of these China’s economy is damaged.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Increase in the unemployment rate can cause chaos in the society. It also increases the rate of crimes, violence, discomfort etc. this also effects the members of the families and cause family tragedies. The economical effects are decreasing the GDP, AD and AS. So unemployment affects every part of the society and government should handle with this problem.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    According to Keynesian model government intervention is important for unemployment. Government should apply some policies in order to overcome the unemployment. And according to Classical models economy should recover itself. This can be real if the expectations from jobs decreases and people accept the jobs that have low wages.

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  136. Melis_Selin_Tatlicanon 11 May 2011 at 9:07 am

    Hi Ozge, I like your comments and the answers to the questions. I agree with you.

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  137. Juan_Manuel_Arguedason 13 May 2011 at 6:37 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China's most worrying macroeconomic problem currently is unemployment. I think that this one is the one that affects the most China's exports. This is because of several reasons. One is that since there is a lot of unemployment, a lot of firms and companies will decrease its production. If there is low amount of workers per company, then the production wouldn't be as high as if the unemployment decreases. If there is a lot of unemplyment, the companies don't get the best amount of production for exporting it. Especially in China, where the production of materials is huge.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The social and economic costs of rising unemployment are not as big as is thought. First of all, the unemployment causes the people who are unemployed, wanting any type of job so they can get money. This will cause that any job that opens, or has space for workers, anyone will take it. The deseperation for earning some money is very big when the unemployment is big. So what would take the unemployment down would be just openning some jobs, or releasing some opportunity jobs for the citizens so they would take them without doubting.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    Classical models, say that economy must self-correct. This is wrong. This will never happen, this is because when people are unemployed, slf-correct economies simply don't exist. Economy says that its purpose is to maximize the well being of the citizens, unemployments what do is the opposite from this.

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  138. Juan_Manuel_Arguedason 14 May 2011 at 6:22 am

    @ Melis

    Hi Melis, I agree with your points, except for the last one. I strongly agree that an economy self-correcting does not exist. This is because since there is unemployment, the only way to arrange it, is by having more jobs right? Now, the purpose of economy, is to maximize the well being of the citizens. The well being of citizens does not include them being unemployed where they can't earn money. This won't achieve maximization in the welfare of the citizens. This is why, there would not be an economy that self-corrects.

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  139. Talia_Greeneon 15 May 2011 at 7:54 pm

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    Unemployment is currently China’s most worrying economic concern. This unemployment has been primarily caused by falling demand for China’s exports, which many jobs depend on.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    There are a variety of social and economic costs, including less revenue generated by the government and a less prosperous economy. Also, civil unrest is often a result of unemployment, which worries the government.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    In the Keynesian model with the upward sloping supply curve, a fall in AD decreases output, which increases unemployment. The economy does not self correct. In the classical model, however, drops in AD encourage firms to sell at lower prices. This results in a self-correcting economy that decreases unemployment.

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  140. Talia_Greeneon 15 May 2011 at 7:56 pm

    @ Melis:

    I agree with your answers, including your point about government intervention in the last one. According to the Keynesian model, an increase in Aggregate Demand will stimulate employment, and government spending will increase AD.

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  141. Kansu Aydoganon 15 May 2011 at 10:02 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    – China’s most concern of economic problem is the unemployment. It seems to affect the demand especially it affected the exports of China, and that will lead the aggregate demand to shift left.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    – Social costs are like low wages, which lead to get another job less. It also lessens the living standards. The economic costs of unemployment are lower GDP, loss of profits and tax revenues. Since any of these effects are good for economy, as well as human beings, government will combat it.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    – According to the Keynesian theory, the government should support and stimulate the economy plus reduce the unemployment rate. However, according to Classical model, the economy needs to self-correct with the time and there will be a decrease in unemployment.

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  142. Gökçe G&on 17 May 2011 at 12:48 pm

    1.china’s most significant economic problem seems as the unemployment which seems to affect the demand influencing China’s exports affect the most; and this will lead the aggregate demand will shift to left.

    2.social cost are mostly seen as more low wages, which is less chance of getting another job, as well as lower living standards and probably more felony. The economic costs of unemployment are lower GDP which leads loss of output into the economy, loss of profits and as well as loss of tax revenue. Thus, it is important for a government to combat it because none of these effects are good for the society or economy.

    3.because of the Keynesian theory, the economy is not able to pull through by itself and that the government should interfere and support stimulate the economy and reduce unemployment, while the Classical model says that the economy needs to self-correct in times of economic unrest and employment will increase if the time is given. On the other side, if most of the countries join together a recession, they will all start prospering at the same time. Thus, the cost of living will be lowered in every country, though this will cause economics to start growing again.

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  143. Cleon 25 May 2011 at 1:28 am

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    Most worrying problem? i say unemployment. It seems unemployment is widespread. If unemployment falls, the rest of the economic problems dissolve with it. However, there is the issue of chicken or egg. If unemployment solves all of the other problems or if all of the other problems solve the unemployment. The falling demand for exports affects trade imbalance and unemployment the most.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Social Costs: poverty, higher crime and vandalism rate, lower standard of living, higher suicide rate.

    Economic Costs: lower levels of output, government has to spend more on unemployment benefits, and receives less income form taxes.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand

    The classical model will clam that the unemployment will even out, and that AD doesn't affect unemployment, but the Keynesian's will argue that unemployment will rise if AD falls.

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  144. Cleon 25 May 2011 at 1:36 am

    @Juan_Manuel_Arguedas_Rodriguez

    I think that the self correcting economy exists, however this economy does not follow te ethical values that our societies promote, like equality, caring for unemployed or homeless, and although the economy self correcting economy exists, the ethical values humans have require that we tamper with the economy.

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  145. bhejaichon2on 28 Mar 2012 at 2:09 am

    1.)What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    – China’s most worrying macroeconomic problem is unemployment because it seems like it affects the demand influencing China’s export the most. Therefore, this will make the AD curve shift to left. The foreign demand has fell significantly and this led many Chinese labours lose their jobs.

    2.) What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    - GDP is going to fall after in the increase in unemployment rate. Loss of tax revenue will be seen because the unemployed does not pay taxes. The government will increase its expenditures to support the unemployed. Living standards would fall. Lower demand will lead to a fall in productivity. the government wants to prevent the increase in unemployment rate to evade these consequences.

    3.) Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    - According to Keynesian model government intervention is important for unemployment. Government should apply some policies in order to overcome the unemployment. And according to Classical models economy should recover itself. This can be real if the expectations from jobs decreases and people accept the jobs that have low wages.

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  146. bhejaichon2on 28 Mar 2012 at 2:13 am

    I agree with all of your answer in regards to the question for this article. Especially the second answer, as the social costs increases, and will definitely lead to the decline of unemployment rate. Great job!

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  147. sophiezon 30 Mar 2012 at 4:20 am

    I agree that Trade imbalance is a major issue in China since their economy is greatly dependent on export. By consuming some of their own products, some of these imbalances would resolve itself.

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  148. sophie zhouon 01 Apr 2012 at 6:30 am

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China's most concerning macroeconomic problem is trade imbalance. Trade imbalance led to the problems of unemployment, deflation, and recession. The reason for this is because the Chinese economy is mainly feed off foreign demand. The elements that affect foreign demand are not controlled by the Chinese government making stimulus difficult because the government cannot return demand the way it was. The Chinese should learn to consume more domestic goods and to have a more better trade balance.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Social costs of rising unemployment are elements like low wages and lower living standards. The economic costs of unemployment are lower GDP, loss of profits made and tax revenues. Since all of these effects are disadvantageous for the economy, the government will combat it.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    According to the Keynesian theory, the government should support and stimulate the economy as well as reduce the unemployment rate. However, according to Classical model, the economy needs to self-correct with time and there will be a decrease in unemployment.

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  149. lzhang2on 02 Apr 2012 at 9:46 pm

    1.What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    China’s most worrying macroeconomic problem currently is unemployment. Especially after urban migration decades ago, China’s workers are facing displacement because they are not skilled enough to earn enough money in order for them to cover the high cost of living in the city, and there is lack of opportunities in the rural areas even if they are returning to the country. The falling demand for China’s exports affect employment. Because industries try to cut costs and hence reduce labour costs as demand is falling.
    2.What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    Social costs are that there may be a lot of problems associated with rising crime rates, as people need money to survive. People may be depressed and there may be the rising suicide rates as people cannot find purpose to live.
    For economic costs, the government needs to pay off a large amount of unemployment welfare. The national output will be lowered, as there are less labour producing goods and services. Lower GDP will be expected.
    Combating unemployment helps to solve social problems and help to generate constant GDP.
    3.Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    Keynesian model suggests that weak AD leads to severe recession and there is no self-correction. To improve the situation, government needs to impose fiscal and monetary stimulus.
    And for neo-classical model, the belief is that the economy will self-correct when labour accepts lower wages to find jobs, firms will employ them, and AS will shift outward and restore the full employment.

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  150. lzhang2on 02 Apr 2012 at 9:49 pm

    Wow, good thoughts on the costs of unemployment. Of course, lower employment rate means less tax revenues to the government and more spending. Firms lose profits as people don't have money to purchase goods and services, and further lower the tax revenue of the government as corporation taxes are based on the revenue of the firms.

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  151. simona cajkaon 06 Apr 2012 at 10:25 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s current most worrying macroeconomic problem is surprising unemployment. China is one of the largest exports of goods, and depends heavily on the demand of foreign countries. Due to the fall in recent demand, firms in China have been experiencing decrease in profits and therefore had to cut employees, increasing unemployment, and moving closer and closer to recession.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Social costs may include fall in living standard, increase in crime and black market labor. Economic costs may include lower output and thus lowered GDP. The government will also be affected, because they will have to increase government expenditure to pay off more unemployment welfare, and yet this will probably receive less tax from the nation, as people have less disposable income without employment.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    Keynesian model says when aggregate demand falls unemployment will rise, and will lead to recession, unless government intervention. The economy is unable to just help itself. The classical model says that in the short run unemployment will rise, however the economy will adjust itself and labor will accept lower wages. This will lead to firm increasing employment, shifting aggregate supply to the right and restoring full employment at a lower price level.

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  152. simona cajkaon 06 Apr 2012 at 10:29 pm

    Hi Izhang2, good response, clear and concise. I found your descriptive answer to the second question very intriguing. 'rising suicide rates' is not something I thought of when rising unemployment was brought up, but it is possible. If people can't provide for themselves, what else can they do? However it is a slightly pessimistic idea. :)

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  153. klake2on 07 Apr 2012 at 6:20 am

    1: What is China’s most worrying macroeconomics problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for china’s export affect most?

    China’s most worrying macroeconomics problem currently would be unemployment, as they went from 0 per cent to 15 – 20 % of unemployment. This of course will lead to recession. This is explain in the article above: “combined with the high cost of living and the struggle of living as an outside in a big city creating an incentive for Chinese workers to return to their familial homes in the countryside. But once they’ve returned home, they find the same lack of opportunity that caused them to leave in the first place. Urban unemployment may shrink as a result of the reverse migration of workers, but rural unemployment will rise. »
    This will make AD shift to the left.

    What are the social and economic cost of rising unemployment and why is it so important for a government to combat it?

    The social and economic costs of rising unemployment are low wages, low living standard for social costs, and loss of output in the market, loss in tax revenue. All governments combat these costs because they bring negative effects to the economy.

    Discuss the differences in the Keynesian and the classical models in their explanation of what will happen to unemployment after a fall in Aggregate demand.

    The Keynesian theory would say that spending in the economy is not going to increase on its own because of the huge increases in unemployment and corresponding lack in consumers and investor confidence. Therefore they say that an active role of the government is needed.
    Whereas in the classical model it would say that China’s government should let the economy to get better by is own.

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  154. kedwardson 07 Apr 2012 at 5:29 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    Unemployment seems to be at the heart of China’s economic issues at the moment. The demand for Chinese exports is falling BECAUSE unemployment is rising and incomes are falling among its trading partners in Asia and the West. The labor market is also decreasing, more and more people are de-urbanizing.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Social costs are the direct problems for people as a result of unemployment, which can range from poverty to depression, and often implies an increase in crime activity. The economic costs of so much unemployment includes a decline in GDP and negative economic growth. Excessive government involvement is then often necessary to pull a country back on their feet.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    If wages are cut then there is a fall in consumer spending which causes a fall in AD, therefore this makes the unemployment situation worse. Unemployment also causes a decline in output and negative economic growth. Keynes theory declares unemployment after the fall in AD as unavoidable, yet the neo-classical model believes that the macroeconomy will self-correct. The two predicted fates of an economy are the main difference in the models.

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  155. dnyanzion 07 Apr 2012 at 5:46 pm

    1) What is China's most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China's exports affect most?

    China's most worrying macroeconomic problem is unemployment which is caused by the falling demand for their products by their trading parts in Asia and the West. This falling demand for Chinese exports is largely due to the fact that Europe is going through a recession and so these consumers spend less on Chinese imports, this is also creating a recession in China as real output produced by firms is falling and unemployment is rising. Since China is so dependent on exports the fall in demand for their products has led to great levels of cyclical unemployment. There is also a rise in structural unemployment as the skills of labour in the agricultural sector are no longer required as much as it is now more capital intensive.

    2) What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Due to the loss in income and self-esteem of the unemployed there will be lower levels of health as they have psychological stress and problems this will mean that the government has to invest more in public health creating an opportunity cost. There may also be an increased level of crime and this is important for the government to combat as investors may reduce their spending as they do not feel safe making an invest in that country.
    Since the unemployed do not receive an income the governments will lose the money the generate from income tax furthermore the spending by these people will decrease meaning the government receives less money from indirect taxes. In some countries the government pays out unemployment benefits and so a big portion of the government’s expenditure will go towards this as opposed to other projects that the government may want to invest in. The fall in unemployment also means there will be a fall or a loss in real output as the labour is not employed and so production is not as high as it could be.

    3) Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in aggregate demand?

    In the Keynesian model although there is a fall in AD the prices and wages are ‘sticky’ downwards meaning they will not fall; firms produce less because of the decrease in AD and the fact that the wages will not fall will mean that unemployment will increase greatly. Keynesian economists would argue that the government needs to intervene using monetary and fiscal policies to stimulate AD and hence shift the AD curve to the right which would increase real output produced and will cause a decrease in unemployment as labour is required. The new classical model suggests that when the AD curve shifts to the left, the price will fall as firms want to sell their output and unemployment will increase. In the long term when wages are flexible they will fall and employers will hire more workers and hence more output shifting the SRAS to the right and the economy will be at full employment at a lower price. New classical economists argue that the market will ‘self-correct.’

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  156. dnyanzion 07 Apr 2012 at 6:08 pm

    @bhejaichon2
    In question 2 you mentioned that the unemployed do not pay taxes this is incorrect as they will still be paying indirect taxes to the government through the goods and services they buy, granted the indirect tax revenue will not be very high. Also in question 3 I would like to add that these policies are monetary and fiscal policies. Other than those minor issues I generally agree with what you said.

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  157. kedwardson 07 Apr 2012 at 6:32 pm

    @sophiezhou

    You present a very interesting perspective about trade imbalance, because unemployment seems to be the most obvious problem, yet trade imbalance and foreign demand are some of the roots of unemployment. Domestic goods are also a viable solution, because the Chinese economy is quite dependent on other nations. Fascinating insight, it gave a different perspective on this topic.

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  158. sjowett2on 09 Apr 2012 at 4:49 am

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China's most worrying macroeconomic problem currently is unemployment, which has been caused by the fall in aggregate demand for their goods from the rest of the world, as they are coming out of a recession. With demand for chinese goods decreasing, China is supplying less, and the suppliers are cutting down on the amount of employees. unfortunately, this problem is so big that millions of Chinese workers are now unemployed.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    As a result of rising unemployment, the national income is decreasing, as less people are working, meaning less available jobs, meaning less taxes. With the GDP falling, the nation's living standards will fall, and the government will have to be giving out more unemployment benefits. This is why it is so important for the government to combat this unemployment problem in order to get the nations productivity up, and an decrease in the unemployment rate.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    According to Keynesian model government intervention is important for unemployment. Government should apply some policies in order to overcome the unemployment. And according to Classical models economy should recover itself. This can be real if the expectations from jobs decreases and people accept the jobs that have low wages.

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  159. sjowett2on 09 Apr 2012 at 4:57 am

    Hey! I agree with all your answers. The third question is pretty straightforward and pretty much every post understood that the neo-classical way is to let the economy re-build itself without any intervention, where as the Keynesian way is that a governemt intervention is essential. IN the first one, the increase in the unemployment rate is due to the decrease in aggregate demand by the rest of the world for chinese goods, which results in fewer people needed to be employed.

    Well done!

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  160. alifsigridardottiron 09 Apr 2012 at 7:14 pm

    1.What is Chinas most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for chinas exports affect most?
    Trade imbalance is by far China‘s most worrying macroeconomic problem, as it has led to numerous other catastrophic problems such as high unemployment rates, a recession and deflation, and the falling demand for chinas exports essentially affects everything, but mainly the employment rate in China because when firms rely on exports, and demand for exports fall then firms have to fire their workers, and that is exactly what is happening, because they are trying to reduce labour costs.

    2.What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    A high unemployment rate means that the standard of living is very low for those citizens, and thats a major social cost. Unemployment benefits are usually a lot less than actual wages, and sometimes there aren‘t any benefits at all. Unemployment can also be the environmental trigger to depression and dodgy hobbies such as vandalism and people even resort to criminal activity if they have no other options (such as finding a job). Rising unemployment also has economic costs, because the economy isn‘t using all of it‘s factors of production and is essentially working within their production possibility curve which is economically inefficient and hinders economic growth. It‘s important that the government combats high unemployment, because the people unemployed are willing and able to work, and in most cases they desperately need to work to survive and it can even be argued that having a job is or should be a human right.

    3.Discuss the differences in the keynesian and the classical models in their explanation of what will happen to unemployment after a fall in aggregate demand.
    The Keynesian model believes tha tthe government should intervene and stimulate the economy by creating new jobs or injecting more money into the economy. However the neo-classical model suggests that government intervention should be kept to a minimum and that there shouldnt even be minimum wage, and that the market will find a new equilibrium at a lower price level than before. The Keynasian model believes that government intervention is essential to reviving the economy, and that the economy cannot ‚‘‘mend itself‘‘ like the neo-classical perspective suggests. Consumer and business confidence also needs to be encouraged by the government, in order to increase consumption. Keynasians dont believe the economy can self correct itself.

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  161. alifsigridardottiron 09 Apr 2012 at 7:18 pm

    Hi Frederico Carvalho, I think your post was interesting to read, however are you sure that China's most worrying problem is unemployment rather than trade imbalance? I believe unemployment is the result of the trade imbalance, as China has been relying for too long on other countries for their own economic growth. I think that's the core of the problem, and if you fix that, deflation, the recession and the rising unemployment rates should get better. I agree with your point on how the market ''freezes'', as that is almost the worst case scenario, if people stop consuming then nothing will get better. That's why it's so important that the government tries to increase consumer and business confidence. Good post.

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  162. axu2on 09 Apr 2012 at 10:11 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation?
    China;s most worryed about the problem of increasing rate of unemployment because less people are being employed and its having an effect on China’s export rate.
    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    Social costs will cause a problem in the society such as increase in crime and also black trades. It is clear that due to the less exports of goods also with less demands, there is less job opporunities, thus GDP would drop and government would thus be hurt, therefore, there is a greater chance of increase in tax..etc. With less money the citizens are making, there is an chance of increase in crime because one have to live.
    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    The Keynesian model suggests that if aggregate demand falls, unemployment rate will rise because the spending and investments will decrease.The labour market next would accept lower wages, therefore, firms would open up job opportunities. Shifting aggregate supply to the right and the full employment at a lower price would be restored.

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  163. axu2on 09 Apr 2012 at 10:39 pm

    hey,
    I think your responses were short and straight to the point. Yet considering the Chinese labour market's status, I don't think that unemployed people have to go to rural areas in order to find more job opportunities. I think there is still jobs in the urban areas. But i guess it just depend on the person's skills and personalities..etc.

    amy.

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  164. nvirani2on 10 Apr 2012 at 4:25 am

    1.What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    Unemployment is the most worrying macroeconomic problem currently in China. Unemployment is also the factor that affects China's exports the most because of the falling demand. The falling demand of exports causes the fall in demand for employees. This increases the unemployment percentage.

    2.What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    The social costs of rising unemployment mean that the cost of living will be increasing and that consumers won't be able to afford the prices. The economic costs would include taxes that might not be able to be covered if people are unemployed. If people can not afford the prices, the economy won't be growing and this is why the government intervention is necessary.

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  165. nvirani2on 10 Apr 2012 at 4:25 am

    3.Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The neo-classical model tells us that over time the unemployment rates will resume back to what they were before and that this is just the short run effect of unemployment. The Keynesian model tells us that government intervention is needed in order to get the unemployment rate back to what it was before, assuming it is a lower percent.

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  166. nvirani2on 10 Apr 2012 at 4:27 am

    Hi!
    I agree that unemployment can contribute to more than just the drop in demand for workers. It can be a contributing factor to things in a city such as crime or black trades

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  167. Jak Maloreton 10 Apr 2012 at 3:19 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s most worrying macroeconomic problem at the moment is catastrophic unemployment. This is because falling demand for Chinas output has led to rising unemployment due to the downwardly inflexible nature of workers’ wages. Colloquially, this means that because of the decreased demand for Chinas output (or exports as the question asks), businesses and companies cannot afford to keep workers at their current wage for long periods of time, and hence must lay off the workers, or decrease their wages.
    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Rising unemployment can cause many people to panic and concern for the state of their employment. This could lead to less expenditure by many families, which would severely reduce the AD, as a social cost. The economic cost is that due to redundancies being made in order to retain high profits for businesses, there will be a decreased AS within businesses due to the low demand for their products. It’s important for the government to combat this in early stages before it begins to spiral and cause more damage than it is able to. Unemployment should be tackled early on because more unemployment ultimately means less money in the economy, which will lead to more unemployment. It’s a vicious cycle which needs to broken.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian AD/AS model states that if the demand for Chinese output is not restored on its own, the Government must take an active approach and attempt to stimulate demand through expansionary fiscal and monetary policies. This is because in times of recession, the Keynesian model states that spending in the economy is unlikely to increase on its own due to huge increases in unemployment & corresponding lack in consumer and investor confidence.

    This is different to the neo-classical model, where the argument is that China’s government are better to let the economy self correct. It could theoretically do this because due to the large amounts of unemployment, price levels will fall in order to sell output. With the price levels being lower, unemployed people will be willing to accept lower wages, encouraging firms to increase their employment of labour, causing aggregate supply to shift outward and inevitably restore full employment with a low price level.

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  168. lgade2on 10 Apr 2012 at 7:48 pm

    Currently, China's most worrying macroeconomic problem is the unemployment that is being created as a result of a recession in the "western" world, along with some Asian markets. Along with the recession comes the decrease in demand for Chinese exports; which decreases revenue for the Chinese exporters who are forced to cut labor costs.

    There are numerous costs associated with rising unemployment; especially in a country such as China. Economic costs include (in general) reduced spending power, standard of living, etc. This decrease in income on behalf of the unemployed can further harm the economy; as the decrease in domestic AD can cause further unemployment as firms gain reduced revenue; sending the economy into a 'spiral' of recession. There may also be some significant social costs associated with the rising unemployment. Under Maoist communism, the official unemployment rate was 0%; and it rising to 15-20% since that time may have dire consequences on the populations lives; as it is a situation that may have been previously 'unimaginable'.

    Keynesian and Classical models of what will occur to unemployment after a fall in Aggregate Demand differ greatly from each other. Keynesian economists believe that in this case, government spending through expansionary fiscal and monetary policies is essential to increase AD and, indirectly, employment. Basically, Keynesian economists believe that government intervention is necessary. Conversely, the classical model reflect the "laissez faire" perspective; and states that the AD will shift to the right without government intervention, returning to full employment 'by itself'.

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  169. lgade2on 10 Apr 2012 at 7:52 pm

    Hey axu2,
    I thought it interesting to read the examples you included for 'social costs' of the rising unemployment rate in China. I hadn't thought to include increase in crime/'black trades'; but it is clear that this would be a consequence of unemployment as people look to find new ways of getting money.
    Thanks

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  170. morpanaon 10 Apr 2012 at 7:58 pm

    1.What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    The problem china faces is unemployment caused by a fall of foreign demand for their exports and a stickiness of wages. As demand has fallen, workers have been laid off as the cost of maintaining them has risen too high, and the inability of average wage rates to fall has to lead to scenario that millions face unemployment.
    2.What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    Social costs include a lowered standard of living for those who are unemployed, and often their families, possible depression, family conflicts due to raised tension as a result of a suddenly more difficult life style, to mention a few.
    As for economic costs, first of all, rising unemployment implies an inefficiency of the use of the nation’s resources—a fall in GDP. Furthermore, it will result in lower tax revenues for the government. In many cases it will also result in higher government spending due to welfare. In addition, the rise in social problems will easily result in economic costs as they have to be dealt with by the government.
    3.Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    The Keynesian model suggests that the fall in aggregate demand will result in a fall of real output with little of a change price level according to their view that wages tend to resist decreases. Since wages will not tend to fall, the economy will not self correct itself and will remain at this point of low production for a long time unless intervened upon the government.
    The Neo classical model suggests that the fall in AD will cause a fall in price level and wages, which the AS will accordingly respond to, shifting outwards and returning to the full employment level with even lower price levels and full real output.

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  171. Jak Maloreton 10 Apr 2012 at 8:09 pm

    Hi Morpana :)

    I especially enjoyed reading the social and economic costs in your post – I had never considered lower tax revenues & higher government spending (due to welfare) as specifically put! I totally agree that the rise in social problems results in economic costs :)

    Jak

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  172. Jak Maloreton 10 Apr 2012 at 8:13 pm

    Hi Sjowett2 :)

    I enjoyed reading the social & economic costs part in your post where you mentioned less taxes. I had never considered less taxes in such a specific way!

    Jak

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  173. Jackson Truexon 11 Apr 2012 at 4:22 am

    1.What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    The largest macroeconomic problem that China faces is unemployment. The decrease in foreign demand has caused a decrease in AD. This decrease in foreign demand is caused from recession in these individual countries. They can’t afford to import goods. This leads to a decrease in production in China and in turn an increase in unemployment due to the fact that there is less jobs available.
    2.What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    Rising unemployment causes individuals to stop purchasing certain goods because they cannot afford it. This causes a decrease in AD. This is a vicious cycle and governments need to step in in order to prevent it. Unemployment causes the GDP to decrease. People who are unemployed also rely on the welfare system in order to survive. This just causes more debt for the government.
    3.Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    Keynesian theory states that an increase in spending in the economy will not likely increase due to the increase in the unemployment rate and the decrease in consumer confidence in investments. The classical model states that the economy will correct itself in time. As the AD decreases, prices will decrease. This will then force people to accept the lower wages and therefore decrease unemployment.

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  174. Jackson Truexon 11 Apr 2012 at 4:24 am

    I really liked your post. I really liked your thoughts on the productivity of workers. Which economic model do you think best explains the situation and its resolution? Good post!

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  175. spouloson 11 Apr 2012 at 6:02 am

    1.What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    From what I have read, I believe that China’s most worrying macroeconomic problem is currently unemployment. This huge rate of unemployment is due to the lack of foreign demand because of the recent recession that affected many countries. Therefore these countries cannot afford to import, which in turn leads to a decrease in China’s production ? unemployment.
    2.What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    If there is unemployment, then people will have less money to spend therefore there will be less economic growth as people aren’t’ spending and the economy is no longer circular. This will lead to a decrease in AD and cause the curve to shift to the left. It is important for governments to combat it because the higher the unemployment the lower the real GDP, as well (in Australia there is a system called the Doll, where people get a certain amount of money a month if they have no job), this causes the Government to spend more.
    3.Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    The Keynesian theory says that unemployment will increase after a fall in Aggregate Demand due to the fact that consumer confidence has decreased, as well as spending habits. However the classical model states that the economy should correct itself in time. They suggest that unemployment will decrease and adjust as people in local stores will lower prices and people will accept that unemployment has occurred.

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  176. spouloson 11 Apr 2012 at 6:03 am

    Good answers, I totally agree with you on the first part, China needs to learn how to consume more domestic goods and to have a better trade balance.

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  177. tdeol2on 12 Apr 2012 at 6:54 am

    1) What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    The most worrying macroeconomic problem for China seems to be unemployment. The huge rise in unemployment resulted from the recession faced by China’s trading partners. It affected China’s economy by significantly reducing exports which were a big part of their income. As the Aggregate Demand falls, the unemployment increases and the GDP also falls which means there is economic decline in China.

    2) What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    There are many economic costs with an increase in unemployment such as loss of real GDP and output, loss of income for the unemployed people who will now be more reliant on unemployment benefits from the government. Other costs could be the effects on the government directly such as loss of tax revenue, costs to the government for unemployment benefits. It could even cause unequal distribution of income. Social problems could be increase in social problems such as a higher crime rate.

    3) Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    There are two key differences between the models, the first is the amount of intervention and the second is the effect on wages. The neo-classical model states that the economy will auto-stabilize and therefore there is no need for government intervention. Since the LRAS curve is vertical, as the AD falls, the wages will also fall. On the other hand, with the Keynesian AS which is horizontal in the Short Run, the wages remain inflexible and the government will intervene through fiscal policies to bring the AD back up.

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  178. tdeol2on 12 Apr 2012 at 6:58 am

    Hey spoulos,

    I think you wrote a very interesting post, what especially intrigued me was that fact that you included the Doll system in Australia. I have actually never heard of it but I would assume it is a sort of unemployment benefit and when there is a rise in people without jobs, the government just has to increase their costs. One thing I didn't quite understand was what you mentioned about the economy being circular though.

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  179. yli2on 12 Apr 2012 at 10:25 pm

    •What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    Unemployment is the most worrying macroeconomic problem they are facing currently.The demand for Chinese exports is falling as unemployment rises and incomes fall among its trading partners in Asia and the West. Economy rcession in these developed western countries and USA causes lack of demand of chinese product, import of chinese products decreases, unemployment in China increses.
    •What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    Loss output to the economy, loss tax revenue to the goverment, Increase in government expenditure, goverment have to spend money to take care those who are in unemployment. why is it so important for a government to combat it? If goverment doesn't deal with this problem, these people who are in unemployment will live a hard life, this is not good for the economy, less tax revenue, loss output to the economy, this could even increase crime rate. That's why the goverment should fight it.

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  180. yli2on 12 Apr 2012 at 10:26 pm

    •Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand. After a fall in Aggregate Demand, the Keynesian model believes the market can't recover by itself due to custmer's confindence to the market has decreased, goverment should spend more in order to supplant the fall in private spending, and create new income, spending, and economic growth.The Classical model believes that the market will correct and recover by itself, people will accept low wages and low prices.

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  181. yli2on 12 Apr 2012 at 10:39 pm

    Oh, I like your point in first part, trade imbalance is the reason why these troubles occur. about consume more domestic good… some goods' price might be a bit high that people cant afford it.

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  182. Mirren Mecathumon 16 Apr 2012 at 5:40 pm

    Hi spoulos,

    I was intrigued by your post as you mentioned the Doll system. As such I did more research about it and it was rather interesting. I realized that this system or something similar exists in nearly every country with each having it's own name. However, they all have the same aim and no matter how "unique" the system is, it is still a cost to the economy and government.

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  183. Mirren Mecathumon 16 Apr 2012 at 5:58 pm

    •What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    According to the article, China’s most worrying macroeconomic problem is the rate of unemployment. It is at a high rate and expresses the concern of the country eventually going into recession. When demand for China’s exports decrease, employment increases as it is affected the most. This is because the effect of unemployment is the decrease in profit of China’s firms and in order to cut cost, firms would have to let go of a number of their employees among other budget cuts.

    •What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Social and economic costs:
    a)Loss of real goods and services, as firms produce less during depression
    b)Social consequences including economic hardship, social problems, crime, rate, increase in domestic violence, use of drugs, suicide, and depression (social cost)
    c)Diminished tax base due to loss of tax revenue.
    d)Increased transfer payments, such as unemployment benefits.
    e)Resources used for unemployment benefits may be used on more beneficial aspects like education or infrastructure. This is an opportunity cost as well.
    f)It will be more difficult for labor market entrants because employers have more choice and would obviously prefer workers with most experience.
    g)Unemployed workers lose their skills. As such it is a negative impact on productivity.

    If the government does not combat it, a big portion of labor population may be affected which leads to the increase of need for social benefits of an economy and social problems.

    •Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian model states that the government intervention is an important factor and plays a role in the rate of unemployment in the country (Done by implementing policies). The Classical model on the other hand explains that the economy would recover by itself.

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  184. Monique Ton 17 Apr 2012 at 11:21 pm

    The most worrying macroeconomic problem for China is unemployment, because this leads to problems for the entire economy. The article described this problem as "catastrophic unemployment". The people of China, who have long seen essentially no unemployment, are starting to suffer from these problems. This means that many people lose jobs, and so do not have money to spend on goods and services, leading to a decrease in domestic demand. It also means that the standard of living for the Chinese people is going down, because many people have to take any work they can get.

    There are many social and economic costs of rising unemployment. People are faced with reduced spending power and lower standards of living, meaning the country is moving backward as people move back to rural villages. China, wanting to move forward as a country, will suffer greatly if its people do not continue to advance to a better life. As well, there will be reduced aggregate demand in the economy due to the unemployment, meaning that the economy will not grow as much as it has in the past, leading to a weaker economy for China. It is important that the government works to combat unemployment, because it can cause these problems; if they do not try to reduce the unemployment, it will turn into a downward spiral of reduced AD and reduced employment, leading to the economy suffering from a recession. China wants its economy to continue to grow and expand, and so it needs to ensure it deals with these problems.

    Keynesian economists believe that government intervention is necessary, because once aggregate demand decreases unemployment will decrease and the economy will contract; therefore, they feel that expansionary governmental policies are necessary to expand aggregate demand and cause unemployment to increase once again. Classical economists, however, feel that the economy will self-correct if left to its own measures; they feel that, as unemployment increases, wages will decrease, meaning costs of production decrease and aggregate supply increases until the economy returns to its level of full employment; they therefore don't see intervention as necessary.

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  185. Monique Ton 17 Apr 2012 at 11:28 pm

    Hi Huanni_Wu,
    I like the point you brought up about the social unrest that unemployment could trigger. Most of us focused on the decrease in living conditions that would result from unemployment, but it is very logical that, with a decrease in living conditions, people will start to pressure the government to change things and improve them. We see a lot of this in places like Greece that are suffering economically; people begin protesting against the government because they want the situation to improve. In fact, 2011 as a whole has been a very big year of protest. Something like unemployment in a place like China, where people are not used to that problem, will likely trigger political issues and so that can be another reason for the government to attempt to intervene to solve the problem, even if they believe the market will self-correct everntually. Thanks for bringing that up :)

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  186. Nadiya Son 21 Apr 2012 at 5:38 pm

    The most worrying and grave problem for China right now is unemployment, because unemployment leads to a large number of unpleasant things. When people are out of jobs, they have less money to spend and their standards of living decrease. With increased unemployment rates there are more people who could be helping China's economy and could be boosting its output, but they are being forced to return to the rural areas where unemployment is also a problem. As well, China hasn't had to deal with such a problem for a very long time, thus they will be less able to deal with it now.

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  187. Nadiya Son 21 Apr 2012 at 5:38 pm

    This very important to combat becasue there are many social and economic costs. Some examples are decreased standard of living, therefore the progression and growth of China is stopped, because the goal is always to be progressing foreward. Another cost is a decrease efficiency, when there are many people who are not able to make a good input because thay are without a job. And there are more…so as we can see, unemployment can start a whole lt of other roblems which is why it is so important for the government to battle this problem.
    In the Keynesian model, it is belived that the government should intervene and help bring the economy back to a good level, and that after AD falls, the government must step in. However in the Neo-classical model, it is belived that unemployment will decrease by itself naturally in the cycle after the fall of AD, becasue eventually everything will go back to the way it was.

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  188. Nadiya Son 21 Apr 2012 at 5:42 pm

    Great response…you described very well what the many costs would be if the unemployment rate were to rise…I think it is evident from your list costs, exactly how important it is for the government to combat the rate of unemployment.
    Nadiya

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  189. Debbie Pon 14 May 2012 at 8:24 am

    •What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    According to the article, China’s most worrying macroeconomic problem currently is the unemployment. As mentioned in this quote,“ The demand for Chinese exports is falling as unemployment rises and incomes fall among its trading partners in Asia and the West,” China as a populous country, does not have enough jobs to support the millions of Chinese left in the countryside trying to seek employment in the country’s massive export sector. This, however, may lead to problems affecting the entire economy of China.

    •What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    As people have no jobs, the aggregate demand would decrease, which then cause no economic growth. This would also decrease the standard of living due to the lack of money and the decrease of national GDP rates. And the cycle would continue on and on, getting worst each time until the government comes to combat it. It is important because only the government can stop it and at the same time stop its economy from growing worse and worse.

    •Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    After a fall in aggregate demand, the Keynesian model would have a greater effect of unemployment compared to the classical models. Therefore, government invention is needed for Keynesian model. However, the Classical model suggests that in the long run, unemployment would fix itself returning to full employment level.

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  190. Debbie Pon 14 May 2012 at 8:32 am

    Hi Jak,

    Great responses. I agree with you that unemployment problems is a vicious cycle which needs to broken by governments. And I think it is interesting how you say " the Keynesian model states that spending in the economy is unlikely to increase on its own due to huge increases in unemployment & corresponding lack in consumer and investor confidence."

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  191. Mkhosoon 11 Apr 2013 at 5:52 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s most worrying economic problem currently is its vulnerability to external shocks. Because China is an export-driven economy, the fate of the economy is very much tied in with the behaviour of exports. If importing countries experience severe recession then there will be an equally severe decrease in there demand for Chinese exports. This will lower aggregate demand in the Chinese economy causing a downturn in the Chinese economy as well. Therefore, China’s biggest problem is the structural nature of the economy (being export-driven).

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The economic costs of unemployment are quite simple. First, the economy does not produce at its full employment level of output. Second, factors of production are underutilized and third, aggregate demand falls as unemployed have less disposable income to throw around.

    The social costs are slightly more complex. On individual scales, unemployed workers can become ‘unemployable’ in the long term as they do not receive training and maintain the skillset to work in a dynamic global market. Similarly, they may experience a loss of confidence and self-esteem. This can cause societies to lose some of their cohesion as the unemployed are generally more restless, more prone to protest and so on. Think Greece.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    In the Keynesian model, aggregate demand and unemployment have an inverse relationship. That is to say when aggregate demand falls unemployment rises and vice versa. In the classical model, the labour market is assumed to have flexible wages in the long-term and short-term employment flexibility. Therefore, a fall in aggregate demand would initially increase unemployment. However, the labour markets flexible nature would result in a lowering of average wages across the industry and the hiring of the unemployed at these wage rates, returning the economy to full employment once again.

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  192. Mkhosoon 11 Apr 2013 at 5:55 pm

    @Monique T

    I do not agree with your point that the Chinese ‘have long seen essentially no unemployment.’ No system can provide 100% employment, while Communism might have provided everyone a job, it did not provide everyone employment. This is because of the phenomena of underemployment where those with advanced skill sets are doing jobs far below there training like working in a Communist factors deep in the heart of Sichuan province.

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  193. nikolay@pamojaon 12 Apr 2013 at 4:51 pm

    1. Unemployment is clearly the most obvious problem china is facing. Firstly the whole article I just read was on the topic of unemployment so that makes it blatant. However further proof can be ascribed to what economic theory states will happen when demand goes down; the supply needed goes down, which means that the producers will need less factors of production. These factors include workers, which means that workers will lose their jobs.

    2. The social costs are things such as transients wandering the streets, increased crime as there is always money in crime, lower living standards for the population, and generally less happy people. The economic costs include decreased productivity. Furthermore if the problem is not addressed the economic costs could be a full blown recession as various parts of the economy relay on one another. If unemployment goes up then income goes down which makes consumers spending go down, which makes demand go down which makes income go down. This sort of descending spiral could be the true economic cost.

    3. The neoclassical model states that if the government were to just wait it out the economy would fix itself. In that model the unemployment will increase the supply of labour, this will lead to a drop in the cost of labour thus employers will simply hire back all the unemployed at the new equilibrium. In stark contrast the Keynesian model states that if the government doesn’t intervene the recession will only get worse. This is supported by the idea that wages are sticky and a firm does not lower the wages of employees, it only raises then fires employees. Which means that the government must generate some demand in order to “kick start” the economy.

    @Mkhoso
    While 100% employment is near impossible, essentially no unemployment is. Especially in an economic boom where there is a huge demand for factors of production such as labour. In this situation even if the position filled is not what the workers is qualified for, they are still employed. As well as an aside the idea that all people should work what they are qualified to work as is a little too idealistic to be true. For instance there is the possibility of attaining a Ph.d in folklore, what one can do with this degree is rather uncertain, and they will likely be overqualified for any type of job involving folklore, however does that mean that they are unemployed, no.

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  194. skangon 12 Apr 2013 at 7:08 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    -China’s most worrying problem is unemployment and trade imbalance. As the country is growing, instead of working to lower unemployment, the country has become heavily dependent on exporting goods. However, as soon as other countries decide to stop buying goods from China, that means that they are suddenly extremely vulnerable to external shocks. As a result, this could also cause unemployment to skyrocket even further. Instead of only focusing on equal export and import (In order to be able to protect their exports) they have only focused on exporting goods.
    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    -If unemployment rises, first of all, there is less tax money that comes into the government. As a result, the government takes in less revenue. This means that the government has less money to create government projects and that they lose their standing as a global power. The social costs are that there will be growing unrest and hatred towards the government. If the public is unhappy, it will be difficult for those with power to keep their power.
    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    -In the classical model, they will say to leave the market alone and that eventually, it will shift towards full employment. In the Keynesian model, it would say that the government needs to sponsor building projects in order to put more people to work and stimulate the market.

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  195. skangon 12 Apr 2013 at 7:10 pm

    # Monique T
    How does a drop in unemployment affect the external demand for goods? China is one of the biggest exporters in the world, how would unemployment affect this demand? Although an increase in unemployment might cause a drop in supply, it should not warrant a drop in demand, internationally.

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  196. Sasha_Son 13 Apr 2013 at 10:16 am

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    Currently, the worst problem China that China has is their unemployment rate, which is increasing for a rather odd reason. After Deng Xiaoping came into power in 1979, much of the old system under Mao Zedong, which carried an unemployment rate of 0% due to every Chinese worker being ‘employed’, regardless of income. Under the new system, so to speak, China was allowed to expand, reaching growth rates of nearly two digits, and with this came an extreme migration of three hundred million Chinese workers from rural areas, where they originated from, to the urban-based export sector. However, today, due to the falling demand for China’s exports, China is experiencing a burgeoning unemployment rate that threatens everything established thus far. The falling demand for exports has resulted in people being relieved of their employment. With three hundred million people having moved purely to work in China’s massive export market, the export demand decreasing has created a situation whereby the reverse is happening: workers are moving back to their rural homes. This is in the hopes that they will find better employment out there than they have been finding in the urban area. This move was misleading, as it was discovered not long after twenty million or so Chinese workers migrated to rural lands that there is no employment there either, as the agricultural market cannot accommodate such an influx of workers. Thus, the migration simply served to only decrease urban unemployment: the move of the twenty million workers simply increased rural unemployment.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    While not expressly considered a ‘social cost’, unemployment is a cost for the unemployed. This is because being unemployed means they are earning less than they would if they were employed, and that is under the assumption they have some sort of welfare benefit at all. Reduction of this benefit, if it is even present, will only cause more problems as the quality of life that the unemployed possesses draws directly from the income that they earn. The costs become greatly unmanageable, and life becomes very hard. This feeds into a growing feeling of demoralization, whereby mental degradation creates rifts between people and perhaps, even worse: suicide.
    Considering the cost to the economy on the social level, collective unemployment in high quantities means that many people require some form of income, and if they have welfare benefits, it may not be enough to ensure at least a livable quality of life. Hence, a collective unemployment at a large scale may give way to crimes like theft and robbery in order to compensate for a lack of income. Although the correlation between the two is quite strong, unemployment is not necessarily the sole cause of this.
    The economic costs are dictated by the idea of output, more specifically potential output. In a situation where there is great unemployment, then the potential output is usually greater than the existing output, and the economy is therefore eschewing their potential output. The loss of output due to unemployment as well as the loss in income means that the government has some degree of opportunity cost as it pertains to spending on welfare for the unemployed. The government actually ends up earning less revenue from taxes because the unemployed, if they earn any income at all, pay taxes with small amounts of money, meaning that the potential revenue is lost on them. The government ends up having to spend more in order to fix this, which is an extra bit of stress on their end.
    The government will invariably have to combat unemployment due to its effects on the economy, as well as its effects on the lives of people who are both employed and unemployed. The unemployed, if they feel dejected or something similar, may not want to pursue employment anymore, which, truth be told, means they are not unemployed per se, but will still cause problems because they may still earn welfare benefits. This means a reduced workforce, which benefits absolutely no firm. The society may have a negative image portrayed because of deaths stemming from unemployment-related stress, which, too, does not spell very good things for the nation holistically. If the unemployed opt to try and turn to crime in order to earn a living, it will make life for the employed very difficult, as they will constantly have to be vigilant. The government may have to invest more in law enforcement if the unemployed become a large-scale circle of crime, which, again, benefits no one. Lastly, the government loses out on government revenue, which they need in order to fund some of the spending on various levels of the economy. Without the revenue, they cannot do as much as they possibly can to improve the economy in whatever way is needed.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    Both the Keynesian and the Classical models demonstrate political ideals, to a certain extent. Keynesian theory states that the government is needed to correct the economy when aggregate demand falls, as a recession does not provide fodder for increased spending, as there is no income for the unemployed. The unemployed, without any income, are unable to spend, and if they have any kind of money with them, they would be hesitant to spend it due to a lack of consumer confidence. The aggregate demand, having gone down because of unemployment, causes a recession with no ability to correct itself. The government’s job is to be there to regulate the economy and return it to a healthy income and provide the foundation for restorative growth.
    The new-classical view ascertains that the government should not be involved with the aggregate demand falling, as the view believes the economy is capable of self-correction. Here, the aggregate demand will drop in the short run. Unemployment rising and price level falling occurs as a direct result of the lack of desire to purchase the firms’ products. The self-correction occurs when the many millions who ended up being unemployed accept jobs at lower wages, which will happen because of the price level decreasing. This will make the employment of labor much more of an attractive idea, which will force the aggregate supply to increase, and restore a new equilibrium.

    To Mikal: I genuinely did not think of social revolution when writing my answer on social costs of a unemployment. General unrest really does seem like an outcome, but I never really thought that it could be used constructively, so to speak. How do you reckon the form of government would affect the response to unemployment (as in, the response of the unemployed to their unemployment)?

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  197. MeganKon 13 Apr 2013 at 3:13 pm

    1. I think as discussed in this article, the drastic rise of unemployment is a very serious matter that the new Politico of China will need to address. Even compared to Greece, 15% unemployment isn’t crazy, but when thrown into scale with their population you see the staggering number of people without jobs in this vast nation. But I personally also believe a large issue is the spread of money across the nation, and specifically the income gap between the higher socio-economic groups of China and the lower socio-economic groups. (can be seen here: goo.gl/LQl0d) This growth in the rising level of income for wealthier provinces like Shanghai and Beijing compared the the growth of population in poorer provinces such as Inner Mongolia and Sichuan shows that the focus on the government definitely needs to be on closing the income gap. If this occurs, I believe that they will be helping the unemployment as well.

    2.
    Some of the most important costs of rising unemployment are: lost output of goods and services, rising costs to Government, loss of investment in human capital, loss of motivation for workers, increases in social deprivation (leading to more gang-violence, abuse, divorce and suicide). These are the sort of externalities that a government doesn’t want to have to pay. The amount of money that would be going into decreasing the issues of social deprivation and the costs for welfare and unemployment benefits is likely higher than the costs for increasing demand for goods and services in markets with structural unemployment, therefore rapidly increasing employment and lowering unemployment rates. Also, the longer that a population exists with a high unemployment, the more angry and aggressive they will become, resulting in a harder time starting up growth and getting the unemployed citizens into jobs and into the labour market again. A great example of this is Greece, where the unemployment levels are rising so rapidly that the government is completely powerless to increase demand for products because so many people are unable to buy the products because they are unemployed, creating a vicious cycle that is almost an unstoppable force.

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  198. MeganKon 13 Apr 2013 at 3:16 pm

    @skang

    I don’t believe that China’s focus on exporting goods has been a bad thing. Looking at the dramatic growth that came from the Chinese harnessing their powers as not only producers of secondary goods/commodities, they wouldn’t have been able to springboard out of the devestation that Mao had inflicted on the labour force during the Great Leap Forward (goo.gl/wNKfX).

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  199. aleeon 13 Apr 2013 at 11:00 pm

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect the most?
    China’s most worrying macroeconomic problem is unemployment. Falling demand for China’s exports affects unemployment the most. China’s export sector no longer needs as many workers because the demand for its goods has fallen.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    The social cost of rising unemployment is that the economy would be producing within the production possibilities curve. The economic cost of rising unemployment is that the unemployed would have no income and therefore have no means to spend on goods and services. Government spending would also shrink because it would be receiving less income from taxes. It is important for a government to combat unemployment because many problems would arise.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in aggregate demand.
    The Keynesian model states that a fall in aggregate demand will lead to an increase in unemployment. The government would need to intervene in order to correct this situation. The Classical model states that although a fall in aggregate demand leads to an increase in unemployment, the situation will fix itself as price levels decrease.

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  200. aleeon 13 Apr 2013 at 11:07 pm

    Hello # MeganK.
    China’s focus on exporting its goods has helped it “springboard out of the devastation that Mao had inflicted,” but now China is too dependent on the economies of its trading partners. The article states that China is now “faced with the largest economic crisis of the modern era” only because its exports have fallen.

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  201. stakon 14 Apr 2013 at 11:48 am

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    - China’s most worrying problem is recession among the countries in the West or Asia who are trading partners. Unemployment is the result of the recession, because the firms had to reduce the production according to the reduced foreign demand

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    - The unemployed people will have no economic activity in the society thus will have no benefit in the economic growth of the country. Also socially high unemployment rate causes negative externality.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    - According to the Keynesian model it is saying that the Chinese government has to intervene and use demand sided policies in order to decrease the unemployment rate. The Classical model is showing that the economy will find its way back to the track again by showing that the demand and the supply will balance out according to laissez faire

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  202. stakon 14 Apr 2013 at 1:54 pm

    # alee

    I liked your answers overall especially the second and the last

    But even though your answer for the first one sounds right I disagree. I would say the unemployment is what is causing the recession so my idea is that it would be ultimately the recession that’s stopping China’s economic growth

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  203. hteohon 14 Apr 2013 at 3:33 pm

    My Response:

    • What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s most worrying macroeconomic problem currently is the drastic rise in unemployment. The current problem is defined as “catastrophic unemployment”. Incomes are also falling among its trading partners in Asia and the West. The demand for workers in its export sector has led to the biggest rural to urban migration in human history because an estimated of 300 million Chinese have left the countryside to seek employment in China’s massive export sector. The agricultural sector, which is the main source of employment in the countryside shows little promise of employment because millions are returning back home. This is because they believe that they will find better employment compared to the urban area. According to the article, more and 20 million rural migrant workers in China have lost their jobs and returned home due to the global economic crisis. Today the China workers is facing the worst situation where there is a push factor of 15-20% unemployment, high cost of living and struggle of living outside of the countryside. The article also mentioned that urban unemployment will shrink due to the reverse migration of workers and rural unemployment will rise. In conclusion, China is facing a problem where the fall in demand for its output has led to the increase in unemployment due to the downwardly inflexible nature of the wages of workers.

    • What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    A rise in unemployment means that the standard of living is very low for the citizens, which is a major social cost. So people are unable to live a good quality of life due to the high unemployment rates. People will save their money due to their lack of income. In order for economic development to occur, a government needs to combat the problem to increase the spending of the citizens and cause growth in the economy. Unemployment can also cause environmental problems where people indulge in hobbies like vandalism or criminal activity due to depression since they cannot find any jobs. There will be increasing level of crime so government would have to combat since investors would not feel safe to make an investment in the country. The loss of self-esteem of the unemployed will cause government to invest more in public health because health will be lowered since citizens will have stress, hence an opportunity cost for the government. However, as unemployment rate rises, government will lose out on revenue hence unable to fund spending on public health or spending levels on the economy and improve it. The increase in unemployment also has economic costs. The economy isn’t using all of the 4 factors of production and is working with the PPC (production possibility curve) where it is not economically efficient. So, the government needs to combat the high unemployment because citizens need to work for survival and a better quality of life. It is so important for a government to combat it because the problem that China is facing now is going to cause more problems. If a government does not try to reduce unemployment, the whole situation would possibly turn into a worse situation where aggregate demand is reduced and unemployment rises, which leads to the economy to suffer from a recession. The problems need to be dealt with in order for China to expand its economy and lead to increasing growth.

    • Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian AD/AS model suggests that if demand for Chinese output doesn’t restore on its own, the government must take action to stimulate demand through expansionary fiscal and monetary policies. The theory states that it is unlikely that spending in the economy will increase on its own due to the rise in unemployment rate, which leads to the decrease in confidence of consumers and investors. Hence, with government intervention is needed to solve the problems of fall in private spending, new income, and economic growth. On the other hand, the neo-classical economist suggests that it is best for the economy to “self-correct” during economic slowdowns like the problem that China is facing now. Neo-classical economists states that when the fall in demand for China’s output in the short run will lead to a rise in unemployment, which then causes price level to fall since firms will find it hard to sell their output. Due to unemployment and the lowering of prices, labor will be willing to accept lower wages, which then encourages firms to increase their employment of labor since they have to pay workers lesser. This will then shift aggregate supply to the right, which will restore full-unemployment at a lower price level than before. So, in the neo-classical perspective, government intervention is not necessary, as neo-classical economists believe that the economy will tend towards the full employment level.

    My comment on #Sasha_S ’s post:
    Impressive answer! I agree with you that a government would need to intervene, as the problem will worsen in the future. I mentioned that government would have to spend more in public healthcare because health of the citizens would be lowered due to stress caused by the rise in unemployment. However you said that the government would lose out on government revenue, which they can spend on funding that can improve the economy. So in that case, how can the problem be solved?
    Also, do you agree with the Keynesian’s perspective or Neo-Classical’s perspective? Do you think that the economy would tend towards full employment in this case or do you believe that the only way the problem could be fixed is if the government takes action?

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  204. tleeon 14 Apr 2013 at 8:59 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    Unemployment would be China’s most worrying problem. Since the demand for their exports and products are falling rapidly, there is no need for workers. As production goes down, there is no need more employment. Therefore the unemployment rate will go up.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    If unemployment rises, the whole economy decreases because there is no money that is flowing in (income). Because there are no jobs, that means that the quantity of goods and products will drop as well. This all means that the government will not gain money from taxes because the people are not making money. In the end, the government will have to spend more and more money trying to provide public projects and other ways of creating jobs. This is why the government is always trying to fight against the rise of unemployment rate.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    The classical model states that if the AD falls which leads to an increase in unemployment, government intervention isn’t required because the problem will fix by itself. The Keynesian states at if AD falls which (in this case also) will lead to an increase in unemployment rate, government intervention, subsidies, or spending is required for the economy to recover.

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  205. tleeon 14 Apr 2013 at 9:03 pm

    Comment to #hteoh
    I agree with you that unemployment rate would be the most worrying macroeconomic problem that China could face. Because of the fall and decrease in demand for their exports, there will be less production. This all means that there will be less works required and more people that will be jobless.

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  206. Yada Pruksachatkunon 14 Apr 2013 at 11:39 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    Like many have said before me, I think unemployment is the most worrying macroeconomic problem. However, the unemployment problem is interwoven with all other problems. To fix unemployment, the government must find a way to reduce inflation and make the income distribution more equal. This may mean going back to a more interventionist, Communist economic system in order to increase job opportunities. The falling demand for China’s exports affect unemployment. Because firms’ revenues are decreasing, and wages are sticky downwards, firms are forced to lay off workers.

    • What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    There are many different lenses to view the social and economic cost of rising unemployment. For the unemployed, there are individual social costs, of lower standards of living. For society and the government, high unemployment rates mean that their factors of production are being underutilized, and higher output and GDP is possible by decreasing unemployment. It is all countries’ wish to increase GDP, so they would need to combat rising unemployment.
    The economic costs of unemployment is vast, as governments have to cover unemployment benefits. Many governments have gone into debt paying for those benefits, and had to sacrifice endorsing other industries for the benefits. With a decrease in unemployment, governments are able to concentrate on paying back debt and/or subsidizing other industries.

    • Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian model says that after there is a fall in aggregate demand, there will be a downward cycle of firing employees’ (increasing unemployment) and decrease in firms’ demand, and that AD will continue to decrease. It is up for the governments to use demand-side policies to bring up firm’s demand. From what I see, this is a cyclical recession, since demand from abroad is decreasing. The government should block off international trade through higher tariffs to imports in order to encourage domestic demand and self dependence.
    The Classical model says that after a fail in Aggregate Demand, the economy will recover out of its own record. With higher unemployment and less demand, wages and price levels for firms’ goods will decrease, and the unemployed will be able to afford more goods. Due to eh drop in wages, the unemployed will be more willing to accept jobs. Thus, the Aggregate Supply for labor will increase. The problem with this model is that wages can be “sticky” downwards.

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  207. avonwendorffon 15 Apr 2013 at 8:56 am

    1.I think that the trade imbalance is the most worrying problem currently. As the market and consumer population in China continues to increase, they will demand more foreign goods which will increase the number of imports. This means that money will continue to flow out of China, and therefore will not be spent on Chinese firms which would have increase employment. Falling demand for Chinese exports means that foreign companies are beginning to produce their own products with their own labor forces because this price of production is beginning to equal the price of production in China. This leveling of the prices of production means that other countries will be able to produce products at Chinese market prices in the USA and export them from USA to China to sell.

    2.Rising unemployment has a wide variety of effects. Not only does it affect the family of the unemployed by lowering or even stopping the monthly income and lowering the living standard, but unemployment also increases the gap between the lower and upper classes. There will also be costs on society such as increased robberies as the poor grow increasingly desperate or increased stress levels of society.

    3.The Keynesian model states that the government should be involved, by putting people to work in programs such as the CCC (part of the programs which FDR created after the Great Depression). The money earned by these workers would return to the economy as they are spent by the workers and their families.

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  208. avonwendorffon 15 Apr 2013 at 9:01 am

    # stak

    I think that the most worrisome problem is the import/export rate currently. I think that the recession, as you stated, caused the increased unemployment. It is a slow economy that causes the decreased export rate. Other countries are suffering economically, and the demand for exports decreases.

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  209. edubison 15 Apr 2013 at 12:46 pm

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    Unemployment is China’s largest macroeconomic problem. As discussed in the article, the falling demand for China’s exports because of recession in other countries affects unemployment the most. Since the population is so vast, 15.3% of only the migrant ˆ workers (130m) had lost their jobs as of January 25; this number is huge and with unemployment an issue in cities and in rural areas, this could develop into a national crisis. The income distribution and other macroeconomic concerns are interlinked with the unemployment issue and do not help the economic situation. Falling demand for exports will cause businesses to layoff employees and unemployment is most directly and greatly impacted.
    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    Rising unemployment levels means less output, higher costs for government to provide for those unable to provide for themselves, loss of motivation, and an increase in social issues. The earlier the government addresses these issues, the less of a problem they will have to deal with and the government should combat rising unemployment to keep the economy striving and the nation’s people happy and healthy.
    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    When AD falls, in the Keynesian model has unemployment increasing and says the government must intervene with expansionary fiscal or monetary policies. The neo-classical model has AD falling then equilibrium restoring itself at a lower price point, with unemployment decreasing until the full employment level is reached.

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  210. edubison 15 Apr 2013 at 2:54 pm

    #avonwendorff
    I agree that the recession caused the increased unemployment, however, I believe that the largest macroeconomic issue China faces is unemployment. It is not China’s economy that has caused the decrease in exports. The decrease in exports occurred because other countries were demanding less of China’s exports, so the businesses cut employees to profit.

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  211. amcpikeon 15 Apr 2013 at 4:05 pm

    1. What is China’s most worrying macroeconomic problem currently: inflation, recession, unemployment, deflation, trade imbalance, or income distribution? Which of these does falling demand for China’s exports affect most?

    The largest economic problem China is currently facing is the surge in unemployment as a response to deteriorating economic conditions around the world. As cheap exports are a cornerstone of the Chinese economy, the decrease in most countries demand for imports was sure to hit them hard. Far from the ‘Iron Rice Bowl’ and 0% unemployment of Mao Zedongs China, urban unemployment is currently at 15-20%. Millions of Chinese are —for the first time in history— migrating back into rural regions to work on family farms. However once home they are unlikely to contribute much to the economy, facing the same financial issues that led them into the cities in the first place. It is unlikely the increase in unemployment will end soon though as wages, which typically drop in this situation, are already too low to decrease to the full employment level of output. Unless the Chinese government can adequately make up the difference, the declining demand for Chinese exports is likely going to be the largest economic hurdle the country will be facing.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Increasing unemployment rates are incredibly detrimental to the Chinese economy and Chinese society as a whole in a number of ways. The greatest cost to the Chinese government incurred by rising unemployment will likely be the lost export revenue, making the Chinese potential output lower than their actual output. As demand for their exports decreases the revenue they were once receiving from international investors will as well. However, this is not the only economic cost that is looming over the Chinese economy. Rising unemployment also means an increase in welfare spending. In China this is likely an inconsequential amount per person, but this is an amount that increases up considerably when one realizes that the unemployed in China number in the hundreds of millions. The development of a ‘Black Market’ must also be accounted for as recently unemployed people will likely seek alternative sources of income.
    The creation of a ‘Black Market’ will likely be detrimental to Chinese society in a number of ways. Whether through the drug trade, smuggling of either artifacts or people, racketeering, etc. Crime will inevitably increase in regions afflicted by increasing unemployment numbers.
    What this means is that the Chinese government will need to combat rising unemployment lest it turns into something far more. Many workers may drop out of the labour force entirely, dropping unemployment rates but giving rise to a range of other issues. In the United States decreasing unemployment rates have proven to be susceptible to this, as a recent drop to just over 7% unemployment comes following news of half a million people dropping out of the workforce. It would be in the Chinese governments best interests to  decrease unemployment even if it means a short term increase in spending.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian and Neo-Classical model differ mainly on the extent to which the government should be involved in pulling the country out of recession. Consequently both reflect political ideologies in some way. The Neo-Classical model is built on the premise that, over time, natural fluctuations in the economy will balance out and that during periods of recession people will accept lower wages and pull the employment levels back up. Keynesian economists would believe in high government involvement, and therefore believe that in times of recession the government can increase spending to help decrease the adverse effects of the recession. Consequently we would assume a Neo-Classical economist would say that in China the people will need to accept lower wages to help rebalance the economy. A Keynesian economist on the other hand would suggest an increase in government spending to combat the unemployment, the route more likely to be taken by the Chinese government.

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  212. amcpikeon 15 Apr 2013 at 4:09 pm

    #edubis
    I would have to agree with you that the Chinese government should take a preventative and not a reactionary stance on unemployment, however I was wondering how you thought they could do this. Can China employ its total population based mainly off of domestic demand or is that too much to expect?

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  213. ylahhamon 15 Apr 2013 at 7:44 pm

    Chinas most worrying problem is their unemployment level. The falling demand for Chinas exports also affects unemployment the most as it is a very direct effect where the demand falls and then the workers lose their jobs.

    the social costs for unemployment is that many people go hungry and homeless, and that there are many people not able to support themselves to live. the economic costs is that the government has to support these homeless people and so they have to charge more taxes which takes money out of the economy, and also puts an economic strain on people who still work.

    well, the classical model shows that the unemployment will go down by itself, and that it has gone down but must go up since the economy will always tend to operate at full capacity whereas the keynesian view is that the economy does not have to operate at full capacity and so the government has to be involved in order to lower the unemployment and fix the economy

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  214. ylahhamon 15 Apr 2013 at 7:47 pm

    @tlee good answer, solid ideas and concepts but i think you should realize that the government also has to support these people who are unemployed, and therefore charge higher taxes which is a leakage from the economy, affecting it negatively.

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  215. jyoungon 15 Apr 2013 at 10:11 pm

    • What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    The most worrying macroeconomic problem currently is unemployment in China. The decrease in demand from the West due to the recession means jobs are disappearing. Workers are actually leaving cities for rural areas now where there are a limited amount of agriculture jobs. There is no way that the Chinese can sustain its growth when it is so demand oriented. This falling demand for China’s exports has a direct impact on this unemployment and growth and eventually the Chinese economy will have to evolve to fit the changing global economy. In the future the other problem will be that China’s wages will no longer be as comparatively competitive.

    • What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Higher unemployment can lead to various social and economic costs. Some results that are not unconnected are more poverty, homelessness, crime, and gang activity. Economically people will spend less because they have less of an income, this decreases demand as well as tax revenue. The government wants to fix this so to increase government revenue, living standards, and ensure that the economy grows.

    • Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The two models disagree on the amount of government intervention required. The Keynesian model argues that spending will not increase on its own and government ‘stimulus’ is important. The classical model suggest that ‘self-correction’ is the best option and the labor market will fix itself through the forces of supply and demand.

    -jyoung

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  216. jyoungon 15 Apr 2013 at 10:15 pm

    # amcpike
    Very good and comprehensive answer! Choosing between the Keynesian and Classical models can be very hard at many different levels, because although ‘self-correction’ from the classical view sounds appealing, it really leaves the unemployed out there and helpless and jeopardized many more jobs. Though when the government intervenes, they must do so responsibly with a definite plan that does not create more problems than it fixes.
    -jyoung

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  217. kkozlovskison 15 Apr 2013 at 10:33 pm

    The most worrying problem right now in China is the unemployment. At the time when many people in China didn’t look for the jobs, but the jobs looked for them, the official unemployment was 0%. But now when the government in China is more “western”, the employment is way above 10% barrier. A time ago people moved from villages to big towns, where they wanted to find a job, but they couldn’t because they didn’t have the qualifications, now everyone is moving back, but there’s the same problem, that the time has passed, when their hands were needed, and that’s why there’s so high structural unemployment. And this also affects China’s exports, because they have fallen as the unemployment.
    Rising unemployment is linked to social and economic deprivation – there is some relationship between rising unemployment and rising crime and worsening social dislocation (increased divorce, worsening health and lower life expectancy). Areas of high unemployment will also see a decline in real income and spending together with a rising scale of relative poverty and income inequality.Unemployment causes a waste of scarce economic resources and reduces the long run growth potential of the economy.
    The Classical viewpoint on what will happen to unemployment after a fall in aggregate demand would be that it advances all by itself with no government intervention needed. They believe this would happen if workers were to work for less so that the demand will rise. However, the Keynesians feel that government implication is needed to raise demand. The government would need to step in and give benefits and cut cost so that the people of the nation are able to pay for necessities.

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  218. kkozlovskison 15 Apr 2013 at 10:38 pm

    # jyoung
    I really liked how you answered to all the questions. I found that almost everything for you was as it wasfor me. I didn’t find anything unusual to your answers.
    Have you ever thought about the expression “westerns” as you said, but what are the westerns for China? The Middle East? I think that this expression should be used more or less arounf Europe, because here is where the model is based. Yeah I use this expression, but I can’t think of anything other.

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  219. cameron7on 16 Apr 2013 at 3:47 am

    1) What is China’s most worrying macroeconomic problem currently? Inflation? Recession?
    Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    The most worrying macroeconomic problem for China seems to be unemployment. Indeed,
    Chine has a massive population and therefore the country’s GDP and quality of life reacts and depends on the people. The huge rise in unemployment, according to the article, resulted from the recession faced by China’s trading partners. It significantly affected China’s economy by largely reducing exports which were a big part of their income. Chine depended on their exports for a large part of their national income. As the aggregate demand falls, the unemployment increases and the GDP also falls which means there is economic decline in China.

    2) What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    There are many economic costs with an increase in unemployment such as loss of real GDP
    and output, loss of income for the unemployed people who will now be more reliant on
    unemployment benefits from the government. Therefore, long-term unemployment will become a problem and that will cause the country to lose money on giving more unemployment benefits. Other costs could be the effects on the government directly such as loss of tax revenue, costs to the government for unemployment benefits. It could even cause unequal distribution of income. Social problems could be increase in crime rate or even suicide. As more people get rejected for jobs or simply stop searching for jobs, depression can be a big effect.

    3) Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    There are two key differences between the models. The first is the amount of intervention
    and the second is the effect on wages. The neo-classical model states that the economy will
    automatically stabilize itself and therefore there is no need for government intervention. Since the LRAS curve is vertical, as the AD falls, the wages will also fall. Contrarily, with the
    Keynesian Model, AS which is horizontal in the short run, the wages remain inflexible and the government will intervene through fiscal policies to bring the AD back up. These are the two most significant models that people consider.

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  220. cameron7on 16 Apr 2013 at 3:50 am

    # kkozlovskis

    I think you answered all the questions very precisely and to the point. Indeed, I agree with you that the unemployment was probably the biggest factor for China, given its massive population. I also think you made some good links in the second questions that unemployment can indeed cause economic and societal deprivation. Good work all in all.

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  221. rkangon 16 Apr 2013 at 4:52 am

    •What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    - I think China’s most worrying macroeconomic problem is unemployment. With an unemployment rate of 15-20%, I think China’s economy is suffering greatly from it. Also, China’s has the largest popuation count in the world. If you look at it from that perspective, that is a lot of unemployed people. The amount of unemployed people in China really hurts their GDP and Aggregate Demand. If income and money isn’t circulating the flow of the economy, then the national income will decrease. Plus, the government has to spend extra money helping those who are unemployed. This will drop the nation’s income level even more.

    •What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    - A smart government will try to combat underemployment. Taxes come from the group of people that receive income for working their jobs. If less people are working, the government would have less taxes. This would result in a drop in the overall income and expenditure flow in China. Also, China won’t be able to make big purchases and negotiate with other countries. China won’t be able to buy as much imports because they would rather have domestic goods to support domestic workers. Also, the reputation of the country will go down if more people are living in complete poverty. As we have read, unemployment rates define is a huge factor in determining the economic growth of a country.

    •Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    - The Classical model depicts how the economy will naturally fix itsself in the long run. Meaning, if the unemployment rate of a country is high, the classical model states the economy will somehow fix itself and create new jobs for people in the long run. The Keynesian model states that government intervention is basically necessary. Especially, when the economy is doing so poorly. Only the government can help the unemployment rates.

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  222. rkangon 16 Apr 2013 at 4:58 am

    #cameron7
    I forgot to mention that China will be suffering a drop in exports due to their very high unemployment rate. And because China receives most of its income through exports to various countries like America, it is a huge detriment to their economy. I think the chinese government should look to intervene and raise the unemployment rates. It may be very costly during the short run but during the long run, it may be all worth it. You have done a good job of explaining how unemployment might be one of the largest macroeconomic problems.

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  223. jshinon 16 Apr 2013 at 5:32 am

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    • I think that China’s most worrying macroeconomic problem is unemployment. China has a population of 1,344,130,000. If 15-20% of these people don’t have jobs, which means 201,619,500-268,826,000 people in China are unemployed. That is almost the amount of people living in the United States. If there are less people being employed, there is less income being earned and that will lead to a lower nation GDP.
    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    • The economic cost for rising unemployment would be the decrease in national income and the nation GDP will drop. The social cost of employment would be that many families would not have a steady income and they may not be able to provide for their family. Also, unemployment may lead to desperate acts such as stealing so crime rates will shoot up and there will be increased gang activity.
    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    • The Keynesian Model says that government intervention is necessary in order for an economy to stabilize and recover. However, the Classical model says that the economy will recover by itself if you give it some time. It says that government intervention is not necessary to recover an economy.

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  224. jshinon 16 Apr 2013 at 5:36 am

    @tlee also a social cost would be a rise in crime rate and gang activity. People will become more desperate and resort to stealing and such to provide for themselves. Also the government will have to spend more money on unemployment benefits.

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  225. ABarrowon 16 Apr 2013 at 6:51 am

    [When dealing with China I speak only in hypotheticals, because after all…it’s China]

    Unemployment is obviously presented as the source of China’s most worrying macro-economic problem, as high unemployment unquestionably accompanies a waste of scarce resources (as the economy is operating within its production capacity) but alas, if the leaders of the PRC choose to stimulate the Chinese economy (Opa’ American style) to boost consumption, then this may have adverse effects on inflation (in the case that an intelligent mixture of monetary, fiscal and supply-side policies is not used) as the Chinese economy will likely be less competitive and destabilizing. This economic plummet will undoubtedly make China’s citizens (as living standards being to drastically fall) and firm’s (as investment dwindles) very unhappy, so unhappy that the unthinkable may happen, Tunisia inspired Chinese spring.

    As for part two of the question, I think the statement “The demand for Chinese exports is falling as unemployment rises and incomes fall among its trading partners in Asia and the West.” takes care of it.

    Some social costs of rising unemployment:
    - Economic desperation causing a rise in crime waves
    - Fall in living standards
    - Employee moral may suffer (job security and wages)
    On the bright side, the high pool of unemployed workers allows for a new, cheaper workforce…

    Some economic costs of rising unemployment:
    - Loss of national output
    - Loss of tax revenue
    - Increase in government expenditure (transfer payments)
    - Loss of profits (firms)

    Why is it important for a government to combat rising unemployment:
    In managing a country’s economy and remaining in power, a key aim of a government is to maintain high levels of employment. During times of recession, incomes fall (unless they are demand sticky) and the number of those unemployed and seeking government benefits increases. This causes a country’s GDP to contract due to a number of factors such as national output diminishing and the distribution of income to worsen that will likely make the country’s citizens very angry and in the mood for a change in leadership (especially in this day-and-age of revolution), however the true impact of unemployment on a government will depend on its rate and its duration.

    Ah yes, what discussion on unemployment would be complete without a back-and-forth between the opposing philosophical viewpoints of John Maynard Keynes and F. A. Hayak…I could write a whole rap on this subject…but for now, let’s keep it simple and to the point:

    Keynesians argue that the economy could settle at any equilibrium – even with high levels of unemployment, and still remain stable. Therefor after a fall in aggregate demand, the Keynesian model argues that the economy will not be able to recover without direct government stimulation in the form of fiscal, monetary and/or supply-side policies. Classical economists argue the economy will only properly recover by remaining laissez-faire, with little to no government intervention at all, therefor if there is unemployment in an economy, due to a fall in aggregate demand, then wages (being flexible to increasing or decreasing) will eventually fall, as lower wages is better than no wages at all, to restore full employment.

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  226. ABarrowon 16 Apr 2013 at 6:59 am

    Dear Alee,

    Four words: circular argument and globalization

    “China is too dependent on the economies of its trading partners. The article states that China is now “faced with the largest economic crisis of the modern era” only because its exports have fallen.” Is a circular argument (logical fallacy) and in terms of globalization, China is irresolutely not too dependent on the economies of its trading. International trade has allowed national economies to grow at unprecedented height (America and the 1st and 2nd WWs). China’s economy, and all other nation’s economies, will likely only become more inter-connected as time goes by…

    Tally ho,

    Amadou L. Barrow

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  227. DBharwanion 16 Apr 2013 at 9:50 am

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    The decrease in the foreign demand has caused a decrease in the Aggregate Demand. This decrease leads to a reduction in China’s production rate and therefore increases the unemployment rate.
    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    When unemployment increases, the demand for most products decrease. Most individuals reduce purchasing certain products because it becomes unaffordable. This causes a decrease in the aggregate demand.
    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    The Keynesian theory states that the government intervention is necessary. If there is a decrease in the aggregate demand this will cause an increase in the unemployment and will result in an unstable economy.

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  228. Malen Kon 16 Apr 2013 at 4:06 pm

    • What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s most worrying macroeconomic problem currently is “catastrophic unemployment”. The demand for Chinese exports is decreasing as unemployment rises and incomes fall among its trading partners in Asia and the West. The opening of the world markets causes the demand for workers in China’s export sector to rise, resulting in almost 300 million Chinese migrating from rural to urban to find employment in the country’s huge export sector. Due to the global economic crisis, about 15.3% of China’s 130 million migrant workers were unemployed and has returned from urban manufacturing centers to the their home villages or towns. There is approximately 15-20% of unemployment in China, with high cost of living and the difficulties of living as an outsider in the big city causing Chinese workers to return to their homes in the countryside. The falling demand for China’s output has led to rising unemployment due to the downwardly inflexible nature of workers’ wages.

    • What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The social costs of rising unemployment are the lower standard of living, lesser chance of getting a job, lower wages, etc. The economic costs of rising unemployment are the lower GDP, loss of tax revenues, etc. It is important for a government to combat it because if the government did not combat it, the economy could eventually decline and result in disastrous events like the Great Depression. The government must interfere to stimulate demand through expansionary fiscal and monetary policies. However, as the blog has mentioned, the best approaches to the threatening social and economic nightmare it faces is for the Chinese government to push forward massive fiscal stimulus plans aimed at putting tens of millions recently unemployed people back to work. Government money can be used to create jobs in private enterprise, producing goods, services and infrastructure that lead to long run economic growth aided by domestic demand for Chinese output.

    • Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian model states that if the demand for Chinese output is not restored on its own, then the government needs to intervene to stimulate the demand through expansionary fiscal and monetary policies. Keynesian theory believe that spending in the economy is unlikely to rise on its own due to the great increases in unemployment accord with lack in consumer and business confidence. Therefore, the government is needed to replace the fall in private spending and create new income, spending and economic growth. In contrast, the classical model would argue that the China’s government should let the economy “self-correct” during the economic slowdowns. As the demand for China’s output falls in the short run, unemployment will rise and the price level will fall, as firms are unable to sell their output. Since prices are lower, labor will be more willing to accept lower wages, encouraging firms to increase its employment of workers, then eventually restoring the full employment.

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  229. Malen Kon 16 Apr 2013 at 4:07 pm

    #ABarrow

    Great response! Your answers are detailed and concepts are well explained. Although I have a question, when you mentioned, “This causes a country’s GDP to contract due to a number of factors such as national output diminishing and the distribution of income to worsen that will likely make the country’s citizens very angry and in the mood for a change in leadership (especially in this day-and-age of revolution), however the true impact of unemployment on a government will depend on its rate and its duration.” What exactly do you mean by the true impact of unemployment on a government will depend on its rate and its duration?

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  230. ahmadson 16 Apr 2013 at 4:26 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    China’s biggest concern at this stage is the rise in unemployment rate. The western countries are facing a recession, during in which the demand for goods and services fall dramatically. And since China is one of the main exporters of goods on this planet, a drop in demand for goods mean people without jobs in China. The more demand decreases the more people who in factories will have to leave the cities and get back to their villages.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    Unemployment can have many negative effects on a nation as a whole. It will decrease the self-esteem of the worker the longer they are jobless. The overall economical impact would be that there will be less production of goods which means less indirect income tax for the government leading to a shrink in government’s total revenue.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    According to the Keynesian models, the government must intervene in such situation and use the fiscal monetary policies and this was adopted during the 1930s great depression. But Hayek model would suggest that we leave the market forces to balance out the unemployment.

    Comment to #DBharwani, I felt like you wrote that post in just two minutes as it contained not even minimum economical analysis and you just swept through questions. You didn’t’ even bother to answer them. Perhaps its because you didn’t understand what the questions were asking because you know they say, “understanding the question is the 50% of the response”. I hope you will discuss your answer deeper next times. Best, Jawed

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  231. Sebastian Changon 16 Apr 2013 at 5:08 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s most worrying macroeconomic problem currently is their unemployment, which is currently increasing at a rather drastic rate – to the extent that it is named as the “catastrophic unemployment”. As mentioned in the article, apart from the macroeconomic problem of unemployment, the export sector had led to the biggest rural to urban migration in human history – leading to the approximately the migration of 300 million Chinese workers moving from the countryside to the urban area to seek for employment in China’s massive export sector. This thereby caused the increase in unemployment rate in the urban area. Falling demand for China’s exports is likely to affect the unemployment the most.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Although unemployment does not have any other direct cost except for the provision of unemployment benefits, unemployment does not really have any direct cost. However, there is some indirect cost from rising unemployment such as social and economic costs. For example, a rise in the unemployment rate would likely lead to a lower standard of living for the citizens in the nation, (a social cost), and people would likely to save more of their money due to their lack of income (an economic cost). Savings is considered as a withdrawal from the circular flow of income, thereby an increase in savings would likely lead to a decline in economic growth, thereby an economic cost.
    It is important for a government to combat the problem of rising unemployment as if the unemployment further rises, the standard of living (the social cost) and economic growth (the economic cost) is likely to worsen, hence it is necessary for the government to intervene in this issue in society.
    Furthermore, unemployment can lead to an increase in environmental problems such as vandalism or criminal activity because people may start to result in these activities as a result of not being able to find a job (their alternative or last resort of survival). This would thereby lead to an increase in crime and is considered as a threat to society – therefore government must intervene this as it may lead to chaos if it is not intervened.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian model states that if the aggregate demand of labor is at disequilibrium due to a fall in aggregate demand, the government should intervene by stimulating the aggregate demand through expansionary fiscal and monetary policies in order to inject money into the circular flow of income into the economy (through governmental spending). This would thereby encourage spending and increase aggregate demand as a whole. On the contrary, the neo-classical model states that if the aggregate demand of labor is at disequilibrium due to a fall in aggregate demand, the government should not intervene as neo-classical model economists believe that it would be optimal for the economy to freely move towards its equilibrium in the long run (regardless of a rise in unemployment in the short run). They believe that because of unemployment, workers (or the labor force) would slowly start to accept lower wages, to which then encourages businesses to increase their employment of labor since they have to pay workers lesser. This would thereby lead to a right shift in the aggregate supply and, naturally, freely move towards its full employment level of labor.

    Comment on #Malen’s post

    Great response Malen! I believe that you miss the part of the last question to discussing the neo-classical model view towards the unemployment after a fall of aggregate demand. In your opinion, do which approach should China’s government take in order to resolve this issue of unemployment; in other words, do you think it would be more beneficial for China’s government to intervene or not intervene with this issue of unemployment?

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  232. dtumanavarroon 16 Apr 2013 at 6:42 pm

    • What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    According to the article China’s most worrying macroeconomic problem is widespread growing unemployment. This is due to a global decrease in aggregate demand for Chinese goods. China has relied on western countries’ demand for far too long and will soon have to reach a more self-dependent market economy. For the first time in decades, urbanization has turned around; people are leaving the cities for agricultural jobs. Out of the factors stated in the above question, I believe that the recessions in western countries affect the falling demand in China the most.
    • What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    The social costs of rising unemployment would be things like lower standards of living and a growing lower class instead of the previously rapidly growing middle class. There will be a loss of business confidence and a probable increase in population who will turn to black market type services.
    The economic costs of rising unemployment would be things like lower aggregate demand, and hence supply. Lowering government expenditure. Less public goods and services maybe due to a decrease in government revenue.
    • Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    According to the Keynesian model, unemployment will get worse and the situation will only get worse. Government intervention will be necessary to get aggregate demand and employment back up on its feet.
    According to the Hayek model, unemployment will eventually fix itself. A lowering aggregate demand will lead to lower prices and unemployment. The growing unemployed population will force the labor force to accept lower wages; therefore unemployment will start to decrease at lower price levels.

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  233. dtumanavarroon 16 Apr 2013 at 7:17 pm

    @ahmads

    Hey ahmad ;)

    I agree with the overall message in each of your replies to the given questions. I liked how you introduced the fiscal policy and connected it to the great depression of the 1930s!

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  234. msurninon 16 Apr 2013 at 8:43 pm

    • What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    In my opinion, China’s most worrying problem at the moment is unemployment, which is caused by trade imbalance. There is a decreasing foreign demand in China’s products, which leads to a fall in exports and a reduction in jobs (unemployment). Unemployment causes millions of people to return back to their homes in rural area, where the main production sector is agricultural, which is not very promising in terms of jobs and sufficient salaries.

    • What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Increasing unemployment will affect China’s once expanding economy in a number of ways. First, the trade imbalance (a fall in exports) will have a detrimental effect on the country’s revenue from exports, which means that less money will be available in the budget. However, the government will need to assist the unemployed by increasing financial aid, healthcare and security, all of which requires money in the budget, of which there is not too much. This means that China’s government might have to borrow money to finance the short fall.

    • Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    One of the main differences between the Keynesian and the Neo-Classical models is the level of government involvement in each case. According to the Neo-Classical economy, over time, the economy will stabilize itself through its natural fluctuations; people will accept lower wages during the recession, which will pull the employment levels back up. Minimum government intervention is present in this case. On the other hand, Keynesians believe that the government intervention is absolutely essential in bringing the economy back up. The government can increase its spending, providing citizens with extra healthcare, security and financial aid, even more jobs, which will naturally decrease unemployment. Looking at China in specific, we can say that the government will adhere to the Keynesian model, and will increase spending in the economy. However, after thinking about it I realized that Chinese (especially those in rural areas) will accept lower wages, which should help more to solve the overall problem of unemployment in China.

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  235. msurninon 16 Apr 2013 at 8:49 pm

    # dtumanavarro

    You said that there will be a decrease in government expenditure and I could see why you think so. China is making less revenue from its exports and therefore the country’s budget is decreasing. However, in order to bring the economy out of recession, the government will need to actually increase its spending. You may wonder where they will get the money from – the government can temporarily borrow money to finance the short fall by providing extra healthcare, security and even jobs themselves.

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  236. bdesslegnon 16 Apr 2013 at 9:25 pm

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    Definitely unemployment, for both questions. It is the most worrying problem in China because there aren’t a great deal of ways to avert the problem. As the demand for China’s export falls, the manufacturing companies of China will cut costs by laying off employees. This had resulted in increased unemployment rates. It is also a problem for the country because since inflation rates are rising former employees found it best to immigrate back to the rural areas of China to be closer to their families. The rural area, however, has already surpassed its ability to employee any more persons. Technological advancements have discouraged the use for human labor in many aspects of the agriculture industry. Therefore, there is a pressing problem.
    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    Employment is a source of acquiring money. And without it there won’t be a source of money. People in order to survive need employment, there should always be a source of income. Government needs to combat unemployment because unemployment could potentially become a source of despair. Unemployed people can’t support their families and thus become a burden to society. And mostly, since self-worth is associated with a profession being unemployed reflects poorly of a person. The morale of an unemployed person will be significantly lower than one that is employed. Therefore, crime rates may increase significantly. Not just that, but the government will be forced to compensate to lack of income through unemployment benefits.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    The differences with the two models about their explanation of what will happen to unemployment after a fall in AD, is the same as their explanation for other factors. Does correction need government interference or not? The Keynesian model argues that it does need government interference of fiscal and monetary stimulus plans within the economy. While the neo-classical model argues that the market will self-correct, however there will be seen a decrease in wage rate.

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  237. bdesslegnon 16 Apr 2013 at 9:32 pm

    #dtumanavarro
    Good answer for the first question. However, I would have liked to see the social aspect mentioned in the second question, it seems you’ve only answered the economic effects. The details for question 3 are well noted.

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  238. clundon 16 Apr 2013 at 10:23 pm

    According to the article Chinas most worrying macroeconomic problem is the unemployment there is to be found in the whole country –both in cities and on the countryside. This has been created because of a decrease in demand of export goods since those countries that used to have their goods produced in China are in recession.
    Examples of social cost could be higher percentage of homelessness, higher rate of crime and an increase of indebtedness of the unemployed. Economical cost could be loos of tax and a decrease in GDP, it could also higher government spending in forms of benefits to support the unemployed or as health care since unemployment often leads to a decrease in health. These are all undesired things for a country and if it has to work, these elements have to be eliminated.
    The Keynesians believes that the equilibrium will stay at the new equilibrium until the government will do something to move it back at the full employment rate, where as the classical economists think that the free economy will self-correct the equilibrium so it will once again be at the full employment level. They think this will happen because the unemployed are desperate to get a work, so they’ll accept a lower wage. This will then make employees hire more people and therefore more the aggregate supply curve to the right and into equilibrium at the full employment level at a lower price level.

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  239. nwarneron 16 Apr 2013 at 10:28 pm

    • What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    The most worrying concern is the increasing levels of unemployment in China which is caused by the drop in demand from the West. This lack of jobs in the city as demand from the West is falling is reversing urbanization and causing people to move to rural areas for agricultural jobs. If China wants to continue its growth it must find a way to fix this problem and have more domestic demand so it is less reliant on foreign consumers for its demand.

    • What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Unemployment causes social problems such as increased violence and poverty rates as well as more gang activity it can also cause less aggregate demand in the total economy as these people have no money to spend on goods and services. This impacts the government as they collect tax off the aggregate demand so the government would want to control it. The final reasons why the government wants to control it is to prevent low living standards and to allow economic growth.

    • Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Classical model believes that the market will correct itself and the government should allow it to while the Keynesian believes that the government should put money into the economy as there will be an equilibrium below full employment.

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  240. nwarneron 16 Apr 2013 at 10:28 pm

    # Sebastian Chang
    I like how detailed your answer is. I agree with your point that vandalism will start to occur. I especially like your answer to the third question it is very detailed and describes the concept well. You clearly have a very good understanding of macroeconomic concepts.

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  241. clundon 16 Apr 2013 at 10:31 pm

    # DBharwani

    For question two it asks for economical costs and social cost, I think you might have misunderstood this. An example of social costs could be a lack of motivation of the unemployed and loss of skills.
    In question three it also askes about the classical view of what will happen to the unemployment after a fall in Aggregate Demand, and not only about the Keynesians -If you’re in doubt it’s explain quite simply in the blog that we read and is responding to.

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  242. rparsonon 17 Apr 2013 at 2:24 am

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    The most worrying macroeconomic problem for China is currently its reliance upon exports to support its economy. While it may have been possible in the past for China to use its massive export surplus to boost aggregate demand, this means that any fall in exports will have dire consequences for the national economy. I think that in this case, the economy could self-correct in the long term, as a major reason why China will lose exports in the long run is the increasing wage level of its workers, eliminating its competitive advantage. A fall in aggregate demand, therefore, will lead to a corresponding drop in wages which will again lead to higher employment.
    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    The social costs of rising unemployment include the decrease in living standards which result from a lack of income, increased crime, worse services due to lack of tax revenue, and lack of personal fulfillment due to lack of work. The economic costs are, under the Keynesian model, the inevitable collapse of the economy. (Barring the contingency of a government intervention) Under this model, therefore, it is critical that the government intervenes before this point.
    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    In the Keynesian model, a fall in aggregate demand will begin a downward spiral into recession, with increased unemployment until the government intervenes. In the classical model, a fall in aggregate demand will prompt a rebalancing of the economy, with goods being produced at a lower price and a return to full employment. These differ in that the Keynesian model requires immediate intervention on the part of the government in order to prevent an otherwise inevitable collapse, while the Classical model predicts no such collapse due to natural market forces.

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  243. rparsonon 17 Apr 2013 at 2:27 am

    @nwarner,

    I agree with your sentiments that the lack of demand from the west is causing unemployment problems, and I think that the best way for China to combat this would be to grow their domestic economy.

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  244. Btunceron 17 Apr 2013 at 5:51 am

    1) What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s most worrying economic problem is the increasing unemployment rate caused by the lower demand for China’s exports. The decreased demand for China’s exports leads to Chinese companies making less profit which means they have to scale down, in order to do so the unemployment goes up. This leads to a decrease in AD in the Chinese economy and because they were already highly dependent on external economies, their domestic AD was already low which made the AD even lower.

    2) What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Social costs of rising unemployment are lower life quality, higher crime rates and most importantly, unhappy citizens. These are very important for the government to combat because these would result in instability which is what the governments are very afraid of and can be seen by the examples today that these instabilities can trigger a catastrophe.

    Economic costs are lower AD and because of the social costs, less productive (both quantity and quality wise) workforce. These are very important for the government to combat because of the lower efficiency which would result in a loss of trust (by other economies) and lower income. This can also lead to an economic crisis.

    3) Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The main difference between the keynesian and neo-classical models for unemployment due to a fall in aggregate demand is the level of government intervention. Neo-classical economists believe that an intervention is not necessary and the economy will correct itself. Whereas the keynesian economists believe that the government should interfere and pump money into the economy to correct it.

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  245. Btunceron 17 Apr 2013 at 5:57 am

    @rparson

    Good answers. I also do believe that China is heavily dependent on the foreign markets. This is because of the generally low wages for workers in China. When a good portion of the customer has very little income, then they can’t afford to buy some products that have higher technology such as electronics which they produce. I believe, if the wage rates were increased, the population would have money to spend and the AD would go up.

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  246. doan hai vanon 17 Apr 2013 at 6:08 am

    China’s most worrying macroeconomic problem currently is rising unemployment rate. Falling demand for China’s exports affects the movement of labour force in this particular country: “The flow of labor from the countryside to the city has reversed, and for the first time in its long history, China is experiencing urban to rural migration”
    Firstly, government has to pay unemployment benefit to those who have been made unemployed. There is an opportunity cost as government has to give up spending for other purposes. Unemployed people will earn less income then they did before. This leads to more severe problems. Unemployed parents might not be able to afford their family’s life. They spend less on goods and services. Government faces a reduction in tax revenue collected from income tax and indirect tax. Rising unemployment rate means we cannot make best use of the available resource. Thus economic activity remains at low level and the potential output growth slows down. Other negative results from rising unemployment are high rate of crime, drinking alcohol and high rate of divorce. Government has to spend more the security efforts. If this condition continues in the long term, this could put bad effect on the younger generation.
    In Classical model, government allows the economy to correct itself. LRAS curve for goods and services is vertical, which means with any short-run shift in demand or supply, the market in the long run will turn back to equilibrium. Thus is a fall in aggregate demand leads to a fall in price but no fall in potential output. Thus the economy will always operate at the full level of employment. Since demand for labour is derived demand which highly depends on demand for goods and services. Thus the same analysis applies for market for labour. A fall in demand affect unemployment rate in the short-run, yet not in the long run. However, labour has to accept lower wage rate.
    In Keynes’ model, the economy doesn’t operate at full capacity at low level of economic activity. A fall in demand causes the potential output to reduce yet the price level remains unchanged. This has the same effect on the market for labour: wage level doesn’t alter yet unemployment rate increases. Thus government has to step in and spend more on goods and services in order to push up the aggregate demand.

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  247. doan hai vanon 17 Apr 2013 at 6:17 am

    # masayaechlf09
    You have made a pretty good response. However, I disagree with you that rising unemployment rate discourage people from work. It might discourage people from spending yet not from work. Although high unemployment benefit make people less willing to work, rising unemployment rate doesn’t lead to higher benefit. It is the government who actively decides how much they spend on unemployment people.

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  248. david.yooon 17 Apr 2013 at 10:17 am

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    -China is currently most concerned about increase rate in unemployment which affects the aggregate demand to shift to left as it is related to income of the people and it is decreasing among its trading parteners in Asia and the West. It is said that since there are millions of people in countryside are returning back home, agricultural sector is decreasing. This leads to decrease in standard of living at outside of the countryside

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The rising unemployment will lead to low wages which lowers the standard of living and less chance of getting another job in the future. Due to the lack of income, people will spend less on goods and services and will save their money. Unemployment not only affects the standard of living but also factors such as health and environments of the place. What I mean by health is that as people are getting no jobs, there will have no money to buy goods and even medicine when they are ill. Also, unemployment can cause the city brutal and violent as there will be more criminal activities due to the poor standard of living. Therefore, the government intervention is very important at this moment, such as increase the spending of the citizens or providing support, to increase the growth of the economy and the standard of living for the citizens.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The two different theories tell us a different view of unemployment. The Keynesian theory says that there should a government intervention to support the economy and lower the unemployment which eventually leads to increase in consumers’ confidence and their standard of living. However, on the other hand, the Classical theory says that economy of the country should “self-correct” and there shouldn’t be any government intervention. It is said that this will eventually encourages firms to increase their employment since they need profits to make.

    # hteoh

    Good response, I agree with your point that unemployment will lead lower the standard of living and will eventually cause criminal activities. Hence, there should be a government intervention.

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  249. Csabaon 17 Apr 2013 at 11:15 am

    1. China’s worst problem is the increase in unemployment rate causing the exports to decrease as well, which decreases the total revenue and decreases the aggregate demand.

    2. The criminal rate of China will increase since there is money that the unemployed people can spend, organized crime will become more popular because it is a way of getting money. Since people are unhappy it can lead to rash actions in terms of politic. Looking back in history Great depression was the best time period for Hitler to gain attention. This might be a bizarre example but it should not be neglected.

    3. The difference is that in classical economics is that they think that unemployment will regulate itself where as Keynesian think is has to be solved by the government.

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  250. Csabaon 17 Apr 2013 at 11:25 am

    @DBharwani

    I agree with you answers but i think for question 2 you could have included aspects like increase in criminal rate or loss in their job skills, i think you didn’t understand the question since it asks for social standards as well.

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  251. ghyafilon 17 Apr 2013 at 11:50 am

    1. China’s current biggest economic issue is unemployment. It decreases the exports and therefore reduces the countries total income.

    2. Unemployment can create different societal problems such as the increase in poverty in general. It can to a certain extent increase violence and crime. It especially increases jobs on the black market which do not benefit for the government. Also consumption decreases since the population is poorer. Slowing down the country’s economic activity.

    3. One of the major difference in these two models is that in the neo-classical theory the economy will fix itself in the long run meaning that new jobs would be created after a certain period of time and solve the unemployment problem. However the Keynesian theory states that the government is the only one capable of solving the unemployment problem

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  252. m2keoon 17 Apr 2013 at 2:49 pm

    My Response:

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s most worrying macroeconomic problem currently is the rise in the level of unemployment. The demand for China’s goods and services are falling and thus causing unemployment to rise, which also affect the incomes among its trading partners in Asia and the West. The opening of the world markets has originally made about 300 million Chinese to leave their home in the countryside to look for jobs in the country’s massive export sector. However, due to the fall in demand, the flow of labor from the countryside to the city has been reversed and for the first time ever in its history, China is actually experiencing urban to rural migration. While these people returned home, the agricultural sector is really the main source of employment but even this sector has shown only little promising of employment for the millions who are returning. And for the very first time in decades, China is left with no choice but to face a problem that many would have thought to be unlikely to happen and that is ‘catastrophic unemployment’.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The rising of unemployment will obviously lead to many costs socially and economically. The social costs would include lower standard of living and lower wages/incomes, etc. The economic costs would include less economic growth, which means a fall in GDP and this further affects on other things such as government revenues, etc. Government needs to intervene and combat these problems to prevent something like the Great Depression to happen again. They will need to put the tens of millions who became recently jobless back to work by increasing their spending to create jobs in private enterprise, producing goods and services and infrastructure that can all lead to real long-run economic growth driven by domestic demand for Chinese output. As mentioned in the article, another possible way for the government to increase demand, which helps to decrease unemployment, is through expansionary fiscal and monetary policies.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    The Keynesian model and the Classical model has two opposing view on what will happen to unemployment after a fall in aggregate demand. The Keynesian model states that if the aggregate demand for China’s output falls, then there is a need for government interventions to stimulate the demand through expansionary fiscal and monetary policies. Keynesian model’s view is that the spending in an economy is very unlikely to increase on its own and this is because of the unemployment rate that also affect consumers’ as well as businesses’ confidence. Thus government needs to intervene to eliminate the issues and increase economic growth through various ways. On the other hand, the Classical model’s perspective believes in ‘self-correct’ during the decline in economic growth. They believes that as demand falls, unemployment will rise and thus price will have to fall as well and when this happens, labor workers are willing to accept lower wages, which encourages firms to employ more labor and as this progresses, full employment will be restored by itself.

    My comment:

    # cameron7
    Personally, I really liked your response to the second question just because you’ve actually managed to touch on the different macroeconomic objectives such as the distribution of income. I agree with you on the loss of tax revenue and this could actually further cause opportunity costs for the government. Good response Cameron! ?

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  253. sminarovicon 17 Apr 2013 at 6:18 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    Currently it is unemployment due to the fact that urban unemployment has made people emigrate from the urban areas and immigrate back to rural areas which causes the rural unemployment to increase. The unemployment has caused people to stop looking for jobs in goods and service that China can export (the reason for which they immigrated to the urban areas in the first place) and so export decreases.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Unemployment will cause more unsatisfied people due to their lack of income and ability to have a better lifestyle. This will cause a decrease in aggregate demand and economic growth in general. The government will also have to provide unemployment benefits for people who have lost their job.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    In the Keynesian model the unemployment will increase after a decrease in aggregate demand and will have to be fixed by the government while in the neo-classical models, the unemployment will have be fixed by the free market.

    #Csaba
    That is a very extreme case with Hitler and Germany. Inflation was through the roof in that time caused by World War 1′s reparations and the Nazi Party didn’t have the majority of the popular vote. Although this unemployment will probably cause reform in China, I doubt that it will be this extreme.

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  254. Tasa Grujicon 17 Apr 2013 at 8:19 pm

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    The most worrying macroeconomic problem China is facing is unemployment. China is the world’s biggest exporter of goods. Her biggest buyers were the western countries. But when the recession hit the western countries, there was a fall in aggregate demand. With the companies and firms not earning as before, their production costs increased in comparison to their profits, and workers had to be laid off. The unemployment grew from 0% to 15 to 20% in a couple of years. Therefore, the recession of the western countries affected China by increasing its unemployment and endangering it to fall in recession.
    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    The social costs of rising unemployment are the decrease in living standards, increase in crimes and violence and increase in poverty. People are stuck in this social disillusionment and are desperate and devastated. The economic costs of unemployment are lost output of goods and services, fiscal costs of the government (unemployment benefits) and deadweight loss of investment in human capital. With all of these “costs” the government has to improve the situation to improve the life of its people and decrease their expenditure towards the people and increase their full potential growth.
    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    The Keynesian model states that the market is unable to recover itself and that it is only possible for the country’s government to fix the economy if it intervenes. The new classical model states that the market is able to fix itself and get back on track by itself. But in reality, the market was never fixed by itself, but rather the government had to interfere to boost their economy.

    @kedwards – You mention that the labor market is decreasing in size since people are deurbanizing. The labor market increases in size, because more people don’t have jobs but are willing to work. Even if they’re deurbanizing, doesn’t mean that they are not looking for jobs.

    @Jackson Truex – Nice post. I like how you emphasize that the aggregate demand of China depends on the aggregate demand of the Western countries.

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  255. ykim3on 18 Apr 2013 at 2:46 am

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    - The problem that China faced is the high rate of unemployment. Since China is a huge exporting country, its economy depends on economies of western countries. Therefore, the unemployment rate can be largely different, especially in the recessions.
    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    - When the unemployment rises, the society has to have some responsibility and burdens to solve those problems. If the unemployment increases, it is very hard to overcome it without any helps from the government. Therefore, the government usually gives some helps by providing financial helps.
    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    - In classical mode, the wage can be dropped theoretically. However, in the Keyensian, the stick part exists, so once they reach some point, it becomes impossible to get decreased.

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  256. ykim3on 18 Apr 2013 at 2:48 am

    @ Tasa Grujic
    As you pointed out, China has struggled with unemployments because it is a huge country, and as I heard there are more people that are not counted as populations. Therefore, there might be possiblities that they take over some jobs.

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  257. xhuanfon 18 Apr 2013 at 3:21 pm

    • What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    The most serious problem is unemployment. And the falling demand for China’s exports also affect unemployment the most. Export demand is a very large factor of aggregate demand of China. As the demand falls, output also falls, and firms need fewer workers. Combined with largest population of the world, unemployment is the most worrying problem.
    • What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    Social: the high cost of living in the urban areas made workers unwilling to take low income jobs and intent to go back to rural areas. However, the technology advance in agriculture reduced the need for human labor. Low education level made workers inflexible for changing job. The population is also too high compared to the jobs available.
    Economic:
    The economic crisis is an important reason. The unemployment rise and income fall among the trading partners of China in Asia and western countries made the demand for export go down. China’s own demand for output is also decreasing. Due to the inflexibility of wage, firms can’t reduce the wage for workers, and as the result the firms will apply less workers.
    It is important for government to combat because the export demand is unlikely to restore on its own due to the global economic crisis and recession. Therefore, government need to take demand-side policies to increase demand.

    • Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    In Keynesian model, the unemployment is not going to cure by itself. Due to the fall in demand, unemployment increase. But as unemployment increase, demand keeps falling down, and the consumers and business confidence fall down , which again increase unemployment. Therefore it is necessary for government to take action, using demand side policy to increase demand.

    However, in new classical models, there is no necessity for government intervention. As the demand drop, the price will also drop, which will make workers willing to accept lower wages, which will make firms willing to employ more workers. So in this model the unemployment will always cure itself in the long run.

    To #ykim3:
    I really agree with your answer to question 1 and 3, especially question 1. As a Chinese, I understand how much our economy depend on export. For question 2, I think the biggest reason it is necessary for the government to react is the export demand is unlikely to restore on its own due to the global economic crisis. If the foreign demand could be restored by itself, then the output will increase again and firms will employ more workers, there would be no need or government intervention.

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  258. jlamunoon 19 Apr 2013 at 4:57 pm

    What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    Unemployment. Falling demand for China’s exports means that the issue becomes even worse as time goes on, since workers would be put out of their job causing the unemployment rate to go up.

    What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    Social cost of rising unemployment is angrier people, they can’t get their wants and in some cases not even their needs which causes demands among the public towards the government for unemployment benefits. Economically it costs a lot of money to keep those unemployed people fed, and if a lot of people aren’t working it means the country isn’t producing.

    Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    In Keynesian model, the unemployment has to be remedied by the government, causing higher demand for workers and thus fixing the problem. Otherwise demand would keep falling and falling, creating a positive feedback mechanism.

    Contrastingly in new classical models there is no necessity for government intervention. As demand drops, so does price which means there will be workers willing to work for less. This model basically states that the demand and supply will adapt to fit the needs of the other.

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  259. jlamunoon 19 Apr 2013 at 4:59 pm

    @ xhuanf

    Very thorough response, I was having some questions about the two different models but your explanation really helped me get a good understanding of such. Really complicated issue, positive feedback all over with workers loosing jobs and companies wanting to save money.

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  260. jduplessison 19 Apr 2013 at 5:36 pm

    • What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    In my opinion the most worrying problem is the Income distribution. With the cost of living being so high and the vast majority of Chinese nationals being paid low or no wages it can be difficult to survive. The falling demand of Chinese exports most directly affects unemployment.
    • What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    A major problem is the cost of living in urban areas. This steers people towards going to the countryside where things are less expensive.
    Another cost of unemployment is that it weakens the domestic Chinese market. With all the people out of jobs they will not be consuming many goods.
    • Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    According to the Keynesian model everything will simply continue to regress unless the government steps in. However the Classical model is far more optimistic and believes that the situation will correct itself over time.

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  261. jduplessison 19 Apr 2013 at 5:37 pm

    # klake2
    Tax revenue is a great example of another cost. It’s one that directly affects the government.

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  262. jduplessison 19 Apr 2013 at 5:40 pm

    # tlee
    Definitely a great explanation of the costs involved during an increase in unemployment.

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  263. hkimon 19 Apr 2013 at 11:37 pm

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?
    China’s most worrying macroeconomic current problem is unemployment. This would be relatively easier for China to have a high unemployment rate since their population is so high. Also because of the high unemployment rates that would cause an inflation leading in an increase in prices of goods.
    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?
    When unemployment rates increase it is pretty difficult for the government (especially in China because of the high population) to focus on individuals. If they are said to be unemployed but currently are looking for work, the government have to provide them with money each month but because the population is so big, the more the unemployed, the more the government would need to spend on the ‘unemployed.’ For the social costs, if these people are really looking for jobs, competition levels will rise making the job more difficult to get. This will increase stress and maybe suicide rates too.
    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.
    For both the Keynesian and Neo-classical model, when Aggregate demand falls, the unemployment rates will increase but the Keynesian model will have to be set right by the government while the neo-classical model believes that the free market will set it right eventually.

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  264. hkimon 19 Apr 2013 at 11:41 pm

    #sminarovic

    I thought your answer was easy to understand and that it had some good points to it.
    It was short and sweet! :)
    Maybe a clearer explanation in number two may have been better but that can be a thing just for me.

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  265. bobby con 23 Apr 2013 at 1:37 am

    -What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    It seems that China’s unemployment is the biggest problem they are currently facing. The problem is that many citizens are moving to the cities so that they would be able to find proper work. But because China is so dependent of exporting their goods and the demand for these has dropped significantly, the unemployment in cities is rising. When these cizilians move back to their homes and villages to work agriculture, the same effect of decreased demand in happening so they are yet again left unemployed. This full circle unemployment is a worrying problem.

    Recession is definitely affecting other countries who usually buy China’s exports (United States being an example). Because the US is in a recession, they must lower the demand for exports as they simply cannot continue purchasing at the same rate. This is what really started the rise in unemployment in China’s cities.

    -What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    With so many more people becoming unemployed, the government must be able to make sure these people are taken care of. Unemployment benefits would have to be given for them to continue to live and since the unemployment is rising, the costs will also rise. It is important for the government to combat this as the other option is to let the economy “self correct” itself, which almost never works out. It is usually fixed by the government stimulating the economy again.

    -Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    For the Keynesian model, a fall in aggregate demand would result in an increase of unemployment by firing workers, decrease of demand for a firm, and that aggregate demand would continue to fall.
    For the Classical model, a fall in aggregate demand would result in the economy being able to fix itself. The unemployment would increase while the demand decreases, so wages and price levels would also decrease. This would mean that the unemployed would be able to afford to purchase more. Also, dropping the wages would mean unemployed would be much more accepting of getting a job.

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  266. bobby con 23 Apr 2013 at 1:45 am

    Reply to #sminarovic

    Great points! On your second point, I do think that because more and more people have become unemployed, they will become much less satisfied. A good worker is someone who is passionate about their work, so this general drop in satisfaction could cause these people to not be as enthusiastic if they got another job thus decreasing economic growth as you previously stated.

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  267. alessiaayoubon 23 Apr 2013 at 7:39 pm

    MY RESPONSE TO QUESTIONS:
    1) Unemployment is the most worrying problem of China!! The reason of the overflow in unemployment rate is due to the fall in aggregate demand for China production after the global recession. ? The firms have been firing their workers (poor workers!) because they cannot find global consumers who demand Chinese exports and they need to reduce their production costs.
    2) GDP is going to fall after the increase in unemployment rate. Loss of tax revenue will be seen because the unemployed does not pay taxes. The government will increase its expenditures to support the unemployed. Living standards would fall because of it then lower demand will lead to a fall in productivity. All of that is NOT good. So the government wants to prevent the increase in unemployment rate to avoid those consequences.
    3) Keynesians believe in fixing unemployment. They believe that unemployment will cause vast amounts of problems, for example, people will not be able to afford necessity goods and that needs government intervention. Whereas in Classical models they believe that unemployment will resolve its problem on its own and government intervention is not needed as workers will get used to the fact that unemployment is part of everyone’s life and they will have to accept it (mean people!).

    COMMENT:
    # bobby c
    That is a very detailed response and very well written! Good job using the US as an example :)

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  268. jaimejaime8on 30 Apr 2013 at 12:16 pm

    1. What is China’s most worrying macroeconomic problem currently? Inflation? Recession? Unemployment? Deflation? Trade imbalance? Income distribution? Which of these does falling demand for China’s exports affect most?

    China’s current biggest problem is, in my opinion, unemployment due to a highest demand for agricultural jobs rather than meeting the everyday growing demand for jobs in the inner cities. In addition the firms are causing unemployment by firing workers, this is due to the fall in consumer demand for China’s exported goods.

    2. What are the social and economic costs of rising unemployment and why is it so important for a government to combat it?

    The government has to take care of rising unemployment for two main reasons. Firstly because unemployed people have to be paid by the government, being a loss of money as they are not contributing to the economic flow greatly. In the other hand because if the most people possible would be employed, they’d all be contributing to a greater economic growth.

    3. Discuss the differences in the Keynesian and the Classical models in their explanation of what will happen to unemployment after a fall in Aggregate Demand.

    According to the Keynesian theory a fall in AD would result in a increase of firing employees, thus increasing unemployment along with a continuous fall in AD and in consumer demand. In the other hand, the classical model states that a fall in AD will lead to a self-fixed economy. This happens due to the fact that as unemployment increases and demand decreases, wages would decrease too thus decreasing price levels, making goods more affordable for everyone and easier job vacancies.

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  269. mchastanet2on 10 May 2013 at 1:16 pm

    1. I believe that the unemployment is the most worrying macroeconomic problem currently in China. Unemployment creates fewer jobs, so less consumer spending, reducing China economic growth. The demand for Chinese good are falling as less output is being made.
    2. Rising unemployment affects at first families living them with less income, money to satisfy their needs. It will also cause the national GDP to decrease and less output will be made. Robberies, shadow economy will rise. Unemployment has to be fight by the government because it produces negative externalities on the population.
    3. The Neo Classical economistic believe that the economy will correct itself without the need of the government intervention to boost the demand. They believe it will work because workers will agree for small wages to have a job and the money spent will increase the demand.
    The Keynesian Model thinks that the government intervention is needed to boost the demand. That is because unemployment is rising and people are less able to buy goods and services

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  270. mchastanet2on 10 May 2013 at 1:16 pm

    # Celine.ecslb.f09

    Hey i choose unemployment too as the most important problem in China. After reading your answer we can also understand that unemployment is a great problem. I liked on of your social cost of unemployment which is Chinese people moving back from urban to rural areas where life is usually cheaper.

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