Wednesday, September 17, 2008

Summary of Strategies for Reducing Unemployment

Summary of the Strategies for Reducing Unemployment

Fiscal policy can be used to reduce all three types of unemployment. Monetary policy can be used to reduce cyclical (Keynesian) unemployment.

Objective to help achieve Low Unemployment
Fiscal Policy
to achieve this objective
Monetary Policy
To achieve this objective
Reduce frictional unemployment
· Government assistance in finding jobs

Reduce structural unemployment
· Government programs to retrain workers or provide additional education
· Tax incentives for people to go back to school or to obtain new skills

Reduce cyclical (Keynesian) unemployment
· Increases in government spending to increase aggregate demand
· Decreases in income taxes to leave workers with more disposable income to increase aggregate demand
· Increase the money supply to reduce interest rates to encourage more borrowing, increase consumption and investment spending, and thus increase aggregate demand.

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