Causes of Unemployment around the World

Self-Check Questions

What are the different policy tools for dealing with cyclical unemployment?


If there is a recession and unemployment increases, we can call on an expansionary fiscal policy (lower taxes or increased government spending) or an expansionary monetary policy (increase the money supply and lower interest rates). Both policies stimulate output and decrease unemployment.

Explain how the natural rate of unemployment may be higher in low-income countries.


Aside from a high natural rate of unemployment due to government regulations, subsistence households may be counted as not working.