Page 59 - Microsoft Word - 00 BA3 IW Prelims STUDENT.docx

Macroeconomics 1 – The domestic economy
1.5 Unemployment
Why we want low unemployment
 The Government has to pay out
benefits rather than collect taxes.
 Unemployment has been linked to
rising crime, poor health and the
breakdown of the family.
 Unemployment can damage
peoples' self-esteem.
 The long-term unemployed may
become deskilled/unemployable.
 Unemployment is a wasted
resource.
1.6 Managing the balance of payments
Why we want to avoid a
long term deficit
 It will have to borrow money to fund 
the deficit, resulting in extra interest
payments.
 The alternative is to sell assets.
 There will be pressure on the
country's currency to depreciate
Counter argument
 Some unemployment will arise even
in a healthy economy as people
have the confidence to change jobs.
 High employment levels can lead to
inflation as higher earnings and
more bargaining power over pay
rises lead to higher demand.
Why we want to avoid a
long term surplus
A long-term trade surplus can cause
significant inflationary pressures
(high demand from overseas).
 A long term surplus is presumably
at the expense of other countries'
deficits.
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