Week 3 Learning Team Assignment
ECO/372
April 10, 2014

Week 3 Learning Team Assignment

Unemployment means that people have no jobs, which in turn means they have less money and that ultimately limits the demand for goods and services. Because of unemployment this can shift aggregate demand to the left. Unemployment can also affect the supply of labor which could leave a negative mark on the economy. Unemployed people often become discouraged during unemployment and will give up looking for jobs thus shifting the aggregate supply to the left. Employers could even use the threat of unemployment to cut an employees’ wages which would make people work hard for less money. Keynesian macroeconomics is often described as “demand-side” theory to distinguish it from classical or “supply-side” theories (“Demand, Supply, and Unemployment”), 2014. In the Keynesian theory it is believed that what certain businesses produce they expect to sell. For example, in a restaurant, if its customers purchase less meals then the restaurant will decrease its production. The level of the restaurant’s production will be determined by its demand. If the restaurant did not have the equipment or necessary personnel to produce meals for its customers then the number of meals produced would be limited by the quantity that the restaurant is able to supply.
Classical macroeconomics is just the opposite and the theory supports that low production and insufficient spending will not constrain the economy or employment. The federal government creates regulations, laws, and policies that benefit and protect the American people and may have an economic impact such as creating jobs. Unemployment affects the government’s ability to generate income and can reduce activity within the economy. The goals of fiscal policy are to reduce unemployment and encourage economic growth.