Which of the following types of unemployment can be best addressed using fiscal policy in the short-run according to the Keynesian model?Group of answer choicesstructural unemploymentcyclical unemploymentfrictional unemploymentnatural rate of unemployment
Question
Which of the following types of unemployment can be best addressed using fiscal policy in the short-run according to the Keynesian model?Group of answer choicesstructural unemploymentcyclical unemploymentfrictional unemploymentnatural rate of unemployment
Solution
According to the Keynesian model, cyclical unemployment can be best addressed using fiscal policy in the short-run. This is because cyclical unemployment is directly related to the ups and downs of the economy. When the economy is in a recession, cyclical unemployment increases because businesses lay off workers to cut costs. Fiscal policy, such as government spending and tax cuts, can stimulate demand and encourage businesses to start hiring again. On the other hand, structural and frictional unemployment are less responsive to fiscal policy in the short-run. Structural unemployment is caused by changes in the structure of the economy, such as technological advancements or shifts in consumer preferences, and requires workers to learn new skills or move to new locations. Frictional unemployment is caused by the time it takes for workers to find new jobs and is a normal part of a healthy economy. The natural rate of unemployment is the sum of structural and frictional unemployment and is not affected by short-run fiscal policy.
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