FIXING

THE UNEMPLOYMENT

MALADY

GROUP MEMBER :

- RININTA NURRACHMI

- SUMAIYAH SALEH TAHER

- FATHIMA FAREEHA

- LIA ADELINA HARAHAP

- NOHA QAID AHMED

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INTRODUCTION Unemployment is faced by every developing economy in the 21st century.

According to the article the issue rise because of a decade’s worth of

mounting debt, low savings, surging asset prices and excess consumption.

The United States was on an unsustainable growth path for at least a

decade – probably longer – before the crisis .

Several efforts have been selected by the US government to solve the crisis,

which comprise

1. Recovery of households’ balance sheets

2. Fiscal stimulus

3. The tradable sector

Objective of the Paper

The paper will discuss about issue that arises in the US economy and the

fiscal stimulus which was conducted to restore the US growth and

employment using the Keynesian model.

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Type of Unemployment according to Keynesian :

1. Frictionally unemployed

2. Seasonally unemployed

3. Structurally unemployed

4. Cyclically unemployed

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Figure : Equilibrium in AS – AD Curve

Aggregate demand was too low because of

inadequate investment demand. Policies should

be aimed at stimulating aggregate demand in

order in the equilibrium.

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Figure :Increase in Aggregate Saving

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FISCAL POLICY IN US ECONOMY

Debt Held by the Public (net public debt),

Intra Governmental Holdings,

Total Public Debt Outstanding (gross public debt)

There are the two main ways of providing fiscal

stimulus:

Tax Cuts

Government Spending

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the U.S. debt from 1940 to 2011 w

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THE EFFECTIVENESS OF FISCAL POLICY

Figure : Increase in Government Spending

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y

r

Yo Y1 Y2 Y3

LM

ISo

IS1

IS2

IS3

Low level of employment

Full employment

Figure : The Effectiveness of Fiscal Policy

THE EFFECTIVENESS OF FISCAL POLICY w

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MULTIPLIER EFFECT

Figure : The Government Multiplier Effect

C,G,I,S,T 45°

S+T

₀

I₁+G

₁

I₀+G

₀

Y

C+I₀+G₀=E₀

C+I₁+G₁=E₁

Aggregate

Demand

Y₀ Y₁ Income

Change in Y

Change in C

Change in I

J S= I

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Figure : Tax Multiplier Effect

Y0 Y1 Income

MULTIPLIER EFFECT w

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TRADABLE SECTOR

Trade deficit of US is one of the most impotent components which contribute to the unsustainable growth of US economy.

Therefore, US need to focus on rising competitiveness in the import, export sector and they must try to stimulate the domestic economy by promoting exports and restricting imports.

For the past two decades, the net employment growth in US economy has been in non tradable sector which has no competitiveness at all.

According to Spence (2011), the tradable sector accounts in the US economy is only 30% (by value added), and the employment growth in the tradable sector is negligible. If employment growth in the non-tradable sector – dominated by government and health care – falters, the tradable sector will have to take up the slack. The problem is that it cannot, even with a depreciating currency. If exports are to grow substantially, the scope of the tradable sector must expand. The powerful growth engines of the US economy must be fixed, because competitiveness becomes the central focus of longer – term US economic policy.

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CONCLUSION

Accumulated issues in the US economy cannot be

restored within a night. High unemployment

rate, mounting public debt and deficit budget are

the complicated crisis need to be recovered to

sustain the economic growth.

Fiscal stimulus has clearly helped the crisis

however the effect was diminishing rapidly.

Fiscal stimulus is only effective during low

unemployment. The US government aims for

introducing competition in the tradable sector

which will lead to employment growth and it has

to be done with limited fiscal resources.

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THANK YOU

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