Answer to Question #323366 in Economics of Enterprise for Him

Question

Given that more multi-national firms are preparing to leave Greece and expand their businesses to Asia. Explain why reducing the unemployment benefits cannot reduce the unemployment rate in Greece. Suggest one policy the Greece government can do to reduce the immediate unemployment rate.

Answer 1

According to economists, people are jobless for five reasons: cyclical, structural, seasonal, frictional, and institutional. All five would have to go away for the jobless rate to drop to zero. Because the economy goes through periodic booms and busts, cyclical unemployment occurs.

Government monetary policy

Interest rates would be decreased as part of monetary policy. Lower interest rates motivate consumers to spend and invest by cutting the cost of borrowing. It increases AD while also increasing GDP and reducing demand-deficient unemployment.

Reduced interest rates will also lower the currency rate, making exports more competitive.

Lower interest rates may not always help generate demand. Central banks may use quantitative easing in this situation, which attempts to enhance aggregate demand by increasing the money supply.