Why is explaining unemployment difficult for economists?
Some economists consider explaining unemployment difficult as it directly depends on the volatile economy that affects the labor market’s surpluses and shortages. In their turn, the latter is to be corrected by a pricing mechanism.
According to Kling, what divides economically trained people from economically ignorant people?
Kling (2008) reckons that economically trained people and economically ignorant ones are distinguished by the ability to see opportunities: where the first notice economic growth, the second pinpoint destruction of jobs. In particular, non-economists tend to argue that foreigners are stealing their jobs, while economists comprehend that better efficiency would not cost jobs.
The most important thing to understand about macroeconomics, and the most important thing you could take from this class, is that increased productivity, whether from international trade or from innovation, is a good thing for an economy. Kling points out several ways and reasons that the economically uneducated (and even some educated) fear productivity gains. Explain the following:
- Why increased productivity and trade are good things for the economy?
- What the job loss fallacy does not understand?
- Both increased productivity and trade are regarded as beneficial for the economy due to the potential ability to move labor resources from one sector that experiences productivity exceeding demand to those that encounters prevalence of demand over productivity. This approach benefits both an employer and an employee to increase and maintain productivity and to keep his or her job, respectively.
- The fallacy is that people confound gross job losses with net job losses. This means that there is actually no job scarcity in many cases and no need to be afraid of productivity gains.
Why do firms adjust by cutting jobs instead of lowering wages? (Only explain the most important reason)
The organizations prefer to adjust by cutting jobs instead of lowering wages because of the inappropriateness of wage cuts caused by changing nature of the economy and limitation of opportunities to increase productivity as a result of the demoralization of workers.
What does Kling recommend the government do about unemployment?
The monetary policy is recommended to be implemented by the government. This action is beneficial to provide the required adjustment and enhance the existing structural imbalance through raising prices comparative to wages that, in turn, is likely to decrease unemployment rates.
Why is it politically easy to bailout a failing industry but economically a bad idea?
On the one hand, a bailout of a failing industry can be regarded as easy in political terms as such business is visible and well-organized. On the other hand, in the context of the economy, it is a poor idea to conduct the bailout due to its changing nature involving both human and physical capital.
Government interventions impede what feature of the economy? How does this harm employment?
The governmental interventions impede the development of private institutions. Using money and credit as a means to subjugate populations, the government can take advantage of the so-called seignorage that refers to a real purchasing power that the government can take from people. Furthermore, the government leaders use the above tools to strengthen their political position. This harms employment by disregarding it in favor of political games.
What does Kling think about the relationship between money/credit and government?
Kling (2008) states that money/credit and government are closely interrelated. Considering traditional printed money and several substitutes, including Travellers’ Checks and Frequent Flyer Miles (FFM), the author comes to the conclusion that the government composes a basis for all these types of money. At the same time, financial institutions, along with financial instruments, are to ensure the credibility of each other.
What is the relationship between a currency’s trustworthiness and that nation’s credibility?
The relationships between a currency’s trustworthiness and that nation’s credibility depend on the sector. Thus, the non-financial sector holding riskless short-term assets attracts more people rather than risky long-term assets of the financial sector. In any way, the central banks also imply a belief in their reliability.
What are the keys ways a bank helps facilitate more economic activity?
A bank can contribute to the economic activity by providing credit for business or expanding it. However, it is crucial to distinguish between viable economic activity and failed organizations. Another way for the bank to facilitate economic activity is to promote trade so that a firm would be encouraged to continue and enhance its performance.
Reference
Kling, A. (2008). Lectures in macroeconomics. Web.