Causes of Unemployment around the World

Critical Thinking Question

Is it possible to protect workers from losing their jobs without distorting the labor market?

Explain what will happen in a nation that tries to solve a structural unemployment problem using expansionary monetary and fiscal policy. Draw one AD/AS diagram, based on the Keynesian model, for what the nation hopes will happen. Then draw a second AD/AS diagram, based on the neoclassical model, for what is more likely to happen.