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What Is Being Done to Control Unemployment?

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Unemployed men queuing for food during the Great Depression, Iowa, USA, circa 1935.
Photo by FPG/Hulton Archive/Getty Images

Question: What Is Being Done to Control Unemployment?

Answer: A certain amount of unemployment is not controllable, since at any given point in time people will be in between jobs. Furthermore, is unemployment is too low, then the economy is considered to be over-heated and inflation is then more of a concern. Therefore, an unemployment rate below 4% is considered full employment.

In fact, a certain amount of unemployment is factored into any attempt to control inflation. Although economists don’t agree on specifics, it is widely accepted that a certain number of jobs must be lost to control each 10th of a percentage point of inflation.

However, if inflation is below 2-3%, and unemployment is above 4%, then ways to stimulate the economy are considered. The primary method for the Federal Reserve to change monetary policy by reducing the Fed Funds Rate. This lowers overall interest rates and spurs businesses to borrow money to invest in their businesses and eventually hire more workers. Low interest rates also boosts the housing market, creating wealth and increasing personal consumption spending.

The second method is through fiscal policy. The Government can directly create jobs through increased spending on government projects, as happened in the New Deal, or through tax cuts, which stimulates spending just like an interest rate decrease.

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