Ways to address Unemployment IB Economics, Section 2 Link to Colorado Unemployment benefits page

Two ways to approach unemployment . . . . Economists fell into two camps when considering ways to address the massive unemployment that occurred during the Great Depression. Classical School Keynesian School Recall the business cycle . . .

The Classicists and the Great Depression The Classical School believed that economies were inherently unstable and would automatically adjust to recession via the business cycle. Unemployment was temporary and would adjust, thus bringing the country out of recession. Friedrich Hayek, an Austrian economist was a leader in this school of thought.

Keynesian School believed . . . John Maynard Keynes, a British economist, believed a reduction in consumer/investor confidence will result in decreased spending and a recession . The business cycle wouldn’t automatically adjust, and government intervention in the economy was necessary to offset the recession

Keynes’ Approach to Recessions: Keynes argued for the use of fiscal or monetary policy to increase output and employment. Business cycle and minimizing the swings - Expansionary policy Contractionary policy Wages sticky downward

Ways to address 3 different types of unemployment. . .

1. Frictional Unemployment Goal for reducing frictional unemployment: Market Response- Government Response-

2. Cyclical unemployment Goal: Market: Government Response:

3. Structural Unemployment Goal: Market Response- Government Response-

3. Seasonal Unemployment Goal: Market Response- Government Response-