Feb 03 2009
What will become of the Chinese worker?
Published by Jason Welker at 9:07 pm under AD/AS Model,China,Classical economics,Fiscal Policy,Keynesian Economics,Macroeconomics,Recession,Unemployment
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 p
rice 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:
- 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.
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 authorRelated posts:
http://welkerswikinomics.com/blog/2009/02/03/what…
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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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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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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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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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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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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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Sorry everyone, my mistake, I submited twice. Just read the one bove. My apology.
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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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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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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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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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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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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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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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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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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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To kerstin
I agree your response, the problem causing problems in China is the recession in the western countries.
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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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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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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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• 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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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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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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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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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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Alison.ecsla.f09:
The unemployment is caused by the recession, so the recession is the bigger issue overall.
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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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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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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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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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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.”
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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.
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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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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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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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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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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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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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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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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.
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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.
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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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@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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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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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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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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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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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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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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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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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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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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eline,
i think your answer to number two and mine have a lot in common.
Laura
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• 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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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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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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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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@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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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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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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•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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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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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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@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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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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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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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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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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• 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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@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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• 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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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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@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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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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@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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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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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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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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•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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@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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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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@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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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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@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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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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@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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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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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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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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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.
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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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@# Mehmet_Mert_Suma
good job Mehmet
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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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@tiffany
I liked your opinions but for the 3rd question you could do better
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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.
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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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@mehmet_mert_Suma
I agree with you in your 3rd answer. In Keynesian model the government intervention is needed.
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@Daniella_Majluf
I agree with you, the unemployement is also effecting the social security because of lack of money.
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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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Hi Ece,
I agree with your second answer; however, the unemployment also has some social effects on people.
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-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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@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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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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@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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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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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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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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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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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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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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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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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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@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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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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Hi Ozge, I like your comments and the answers to the questions. I agree with you.
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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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@ 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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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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@ 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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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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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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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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@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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