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Economics IGCSEPDF 98
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P1: Cyclical Unemployment is Easier to Reduce
○ K: It is a demand problem that can be solved with demand-side policies.
○ An: Governments can use expansionary fiscal policy (e.g., increased G, tax
cuts) or monetary policy (lower interest rates) to increase AD.
○ An: These policies are relatively fast-acting and can restore demand, quickly
reducing unemployment as firms re-hire laid-off workers.
P2: Structural Unemployment is Harder to Reduce
○ K: It is a long-term supply problem requiring fundamental economic change.
○ An: The solution requires expensive and slow-acting supply-side policies like
education, training, and geographical subsidies to relocate workers.
○ An: There is a high chance of political and social resistance from workers
unwilling to retrain or move away from their communities.
EVALUATION:
○ Cyclical unemployment is definitely easier because the necessary skills still
exist in the workforce; the workers just need demand to return. Structural
unemployment requires fundamental changes in human capital, which involves
significant time, cost, and political will.
An: The government's budget position worsens significantly due to lower tax revenue
(fewer people earning income) and higher expenditure on unemployment benefits.
An: This unemployment is widespread, causing a reduction in overall consumer
spending, which further discourages business investment and prolongs the recession via
the negative multiplier effect.
E: It is a clear indicator of inefficient resource allocation and lost national wealth.
4.8 Inflation and Deflation
Q7.3: Reducing Cyclical vs. Structural Unemployment (8
Marks)