Common Measures Done by Government to Help Decrease Unemployment Rates

Unemployment is a macroeconomic indicator of any nation. Macroeconomics deals with the overall behavior of the country’s economy, so when we say that unemployment is a major macroeconomic indicator of a nation’s economy, it reflects a condition brought about by many several factors. While unemployment is a macroeconomic indicator, there are microeconomic indicators for unemployment; they refer to certain behaviors among employers, employees and consumers, and government institutions which can indirectly affect the economic circumstances of society.

Some of the most common policies the government executes to combat some negative conditions within the economy are those advocated by the most influential economist of the 20th century by the name of John Maynard Keynes.

Fiscal policy is the strategy that encourages the government to make the national economy stable by adjusting the levels of spending and taxation. Government spending is a major factor that influences employment and unemployment rates. In recessions for example where national economic output is very low thus resulting to an increased unemployment rate as well, fiscal policy theory states that spending of the government should be increased and taxes lessened to convince businesses to invest and consumers to spend. The expected end results would be higher demand for goods and services, increased production, and increased employment.

Monetary policy is a strategy expected from monetary authorities of the government (in the case of U.S., the Federal Reserve), to adjust monetary supply and interest rates with the objective of motivating or limiting economic activities. This is most observed when the government offers cash of loanable funds at increasing amounts during recessions. For example, the Federal Reserve banks are convinced by the State to purchase government securities from private, commercial banks so these commercial banks can increase their monetary reserves and boost their capacity to lend to consumers. The same thing happens when these Federal Reserve banks sell their securities to commercial banks—an increased reserves and ability to lend to commercial banks.