Unemployment as a result of low growth of aggregate demand

Unemployment in a country is majorly caused by the decrease of the aggregate demand with an increase of the trend rate of growth. Just to define the two factors, aggregate demand refers to the full amount of demand for goods and services of an economy at a given period of time (Mankiw, 2009). The trend rate of growth on the other hand, is the average rate of growth of a given economy that is sustainable without pressures of inflation. In connection to the Article A UK economy, the aggregate demand has declined while the trend rate of growth increases due to the nature of competition that exists between public and private sectors of the economy.

There are different ways in which the aggregate demand affects unemployment in a country and more specifically the UK for this case. Different factors such as the exchange rate policy, the introduction of new companies and the population growth among others affect the rate of unemployment. To start with, the exchange rate policy plays a big role in stabilizing the aggregate demand. This effect is felt mostly when a country’s import and exports are not proportional. Variations in the exchange rates affect the macro-economic environment by changing the prices of commodities. The exchange rate policy has however balanced the other negative factors by saving the UK’s economy by 20% reduction of the pound. However if UK imports products from other countries other than New York, the rates will have a negative impact on its economy. From the analysis we find that the effect of the exchange rate policy affects the aggregate demand. Aggregate demand has a direct influence to the rate of unemployment.

The other factor that has a direct influence on the aggregate demand and the trend rate growth in the UK is the growth of industries for both the public and the private sector. From the recent updates about the rate of growth, it is found that the public sector has lost 77000 jobs in 2009 which come as a result of companies’ closure, economic dropdown and so on. This reduction of employment opportunities might have caused by factors that affect the aggregate demand such as presence of monopolistic kind of markets whereby some companies dominate in their respective industries (Kirby, Carreras, Meaning & Piggott, 2015).

UK has very many monopolies both in the private sectors. Some of them include the Royal Mail services, Microsoft which owns the Windows operating system, British Telecom is another example of a monopoly which dominates the communication of telephone cabling across the UK. Monopolistic market have a significant effect on the growth of the aggregate demand the also the trend rate of growth. Monopolies have a long list of drawbacks among which is little competition.  This comes along with all the consequences that arise when a market is not competitive. First, the monopolies usually produce low quality services at a high cost leading to unequal distribution of the income and the benefits to the consumers (Chowdhury, 2015). This is because the price variation of products and services for their services is in the hands of the dominant companies.  Customers often get oppressed by the poor services because they don’t have any close substitutes to such services and they cannot get served anywhere else.

Considering the absence of competition in the monopolistic market of mails, these dominant companies will tend to increase prices of their products and services. As a result, the trend rate of growth will rise. Customers will automatically suffer from the high cost being served. For this reason, customers will have to limit themselves from accessing the services offered by these companies so that they can sustain their lives in other dimensions. Some will look for alternative channels of communication that are less expensive (Chowla, Quaglietti, & Rachel, 2014). A continuous of this tread eventually lowers the demand of the services offered by the dominant companies. Once the two factors; the aggregate demand and the increase of the trend rate of growth are fully saturated, what follows is unemployment (Kirby, Carreras, Meaning & Piggott, 2015).

Widening this view to a national and global level, if several companies dominate and form a monopolistic kind of market, the prices of most commodities will have to rise. This means that the cost of purchase shall increase for both inputs and outputs. The overall purchase power of customers and business owners will have to reduce (Chowla,  Quaglietti, & Rachel, 2014). In the UK, the problem of monopoly is majorly affecting the public sector. With the 2009 estimation that 600, 000 jobs will be dominated by the public sector whereby a sharp structural unemployment is expected to face the country (Kirby, Carreras, Meaning & Piggott, 2015).

Conclusion

If aggregate demand and trend rate of growth develop in an inverse proportionality, the resultant outcome will automatically be unemployment. Although most governments tolerate monopoly, it should not be encouraged because its harm to the overall economy (WOOD, 2009). The country has room for improving the economy by allowing the private sector to have a bigger potion of the economy’s contribution. It is evident that the unemployment is neutralized by the way the private sector has created jobs by staying by the measures that increase the growth of the aggregate market and at the same time implementing measures that reduce the trend rate growth of the economy (Branston, Cowling & Tomlinson, 2014).

 

 

 

References

Chowla, S., Quaglietti, L., & Rachel, t. (2014). How have world shocks affected the UK economy?. Bank Of England Quarterly Bulletin, 54(2), 167-179.

Kirby, S., Carreras, O., Meaning, J., & Piggott, R. (2015). Prospects for the UK Economy. National Institute Economic Review, 234(1), F41-F66. doi:10.1177/002795011523400113

WOOD, P. (2009). Service Competitiveness and Urban Innovation Policies in the UK: The Implications of the 'London Paradox'. Regional Studies, 43(8), 1047-1059. doi:10.1080/00343400801968437

Branston, J. R., Cowling, K. G., & Tomlinson, P. R. (2014). Profiteering and the degree of monopoly in the Great Recession: recent evidence from the United States and the United Kingdom. Journal Of Post Keynesian Economics, 37(1), 135-162. doi:10.2753/PKE0160-3477370109

Mankiw, N. G. (2009). Principles of economics. Mason, OH: South-Western Cengage Learning.