Tuesday, June 5, 2007

Question on Supply side policies and reducing unemployment

when they ask about factors that lead to both low inflation and low unemployment, can we talk about many supply side policies as different points?

Yes.

Suppose they ask a question Why has unemployment fallen in UK.

I would say:

  • More flexible labour markets (e.g. unions have less power)
  • Better education and training (reducing occupational immobilities)
  • Better information about getting jobs (lower frictional unemployment)
  • More difficult to get benefits JSA
  • Long period of economic expansion, creating jobs and reducing demand deficient unemployment
However, if you only gave supply side factors, you would not get full marks. You need to consider both demand side and supply side factors, for both inflation and unemployment

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