Are Economists overstating the cyclical unemployment rate and understating the natural rate?



Are Economists overstating the cyclical unemployment rate and understating the natural rate?

Introduction

To present an overview of the use of rules, criteria and indicators in the design and conduct of economic policies is entered in two quite different academic worlds. The first is the set of techniques, methodologies, econometric and statistical models supports the daily work of making decisions. The second is the regulatory domain, which precedes and justifies the action, and implementation strategies of economic policy. The strategies are nothing more than a set of beliefs shared by those who decisions are made about how the economy works (Gali, 2011). The aim of this essay is to focus on the issues that Economists views about understanding cyclical unemployment rate and the natural rate are overstated or not.

Discussion

Economists had a mystical sense, the strength of utopia, the inexplicable faith in their approaches and a keen spirit of sect for understanding the cyclical unemployment rate and natural rate. Cyclical unemployment according to Keynesian is unemployment associated with the cyclical changes in productivity of the economy. It occurs during the recession - declining demand for goods and services offered by the company, which produces a decrease of production. Decline in production causes the decrease in demand for labor, which leads to the appearance of cyclical unemployment. In second situation the demand for goods and services offered by the company grows, causing an increase in production. Output growth increases the demand for labor, leading to a gradual disappearance of cyclical unemployment. The view on cyclical unemployment by Keynesian raised a question on the state's role in alleviating and lengthening cycle's policy, which in the opinion of Keynes was to lead to effective prevention of unemployment, was based largely on the creation of investment ...