CIE AS SAMPLE ESSAYS

Assess which expansionary macroeconomic policy would be most likely to enable a government to meet its economic objective of a low rate of unemployment. [12]

In the pursuit of a low rate of unemployment, governments can employ various expansionary macroeconomic policies.

Expansionary supply-side policies such as improving the skills and employability of the workforce through training and education programs equip individuals with relevant skills. It enhances their employability, thereby reducing structural unemployment. By focusing on education and vocational training, workers become more occupationally mobile. This adaptability can significantly reduce long-term unemployment as workers are better positioned to fill available job vacancies. Another advantage of this policy is it can be tailored to meet the specific needs of industries facing labor shortages, thus addressing mismatches in the labor market. For example, if the technology sector is growing but lacks skilled workers, targeted training can help bridge this gap.

However, implementing effective training and education programs takes time. This delay can mean that unemployment rates remain high in the short term. Therefore the benefits of such programs may not materialize immediately. Furthermore, there is a risk that training programs may not align with market needs, resulting in graduates who are not equipped for available jobs. If the training does not match industry demand, it could lead to wasted resources and further unemployment.

An alternative approach is the use of expansionary monetary policy, primarily through lowering interest rates. This policy is quicker to implement, hence can quickly stimulate demand by encouraging consumer spending and business investment. When borrowing is cheaper, both consumers and businesses are more likely to take loans, leading to an uptick in economic activity and job creation.

However, prolonged low interest rates can lead to inflationary pressures, which might ultimately harm economic stability and employment levels. If inflation rises unchecked, it can erode purchasing power, negatively affecting consumers and businesses alike.

Expansionary monetary policy is most effective for reducing unemployment during recessionary periods. In such environments, where demand is low, it can quickly stimulate economic activity by lowering borrowing costs, leading to job creation.

Conversely, in cases of structural unemployment, like those caused by technological changes or industry shifts, supply-side policies focused on education and training offer more sustainable solutions. By equipping the workforce with relevant skills, these policies tackle the root causes of unemployment rather than just the symptoms.

In conclusion, both expansionary monetary policy and supply-side policies can effectively reduce unemployment, but their success depends on the economic context. Therefore, a balanced approach that employs both strategies may be the most effective way to tackle unemployment in various economic situations.