Jobless Rate Is Not the New Normal

I. What is the macroeconomic issue?

The macroeconomic issue discussed in the article Jobless Rate Is Not the New Normal is the rise in the normal rate of unemployment. The average unemployment rate was 5% before the economic turmoil that hit US. However, during the recession and post-recession this normal rate of unemployment varied quite significantly. For some quarters during the recession, the unemployment rate went as high as 8%. In his article, Romer (2011) discusses whether the increase in the unemployment rate is a cyclical phenomenon or is it a consequence of lack in demand and general hesitance for hiring.

II. Why is this a macroeconomic issue?

Unemployment is a macroeconomic issue. The rate of unemployment determines the standard of living in a country. Moreover, it has other macroeconomic implications for the policymakers. For instance, the monetary policy and the fiscal policy may change in order to address the issue of rising unemployment in the country (Hall, p. 220). The discount rate may rise or fall and the government may inject money into the economy to increase production. Increase in production will mean increase in the active work force in the economy. Unemployment is one of the important macroeconomic factors that affect every person in the country. The rate of unemployment determines the purchasing power for consumers and investment decisions for local and foreign investors. Although, the unemployment rate is never zero, it is something that needs constant monitoring of the policymakers. An exceptional increase in the unemployment rate has a cause and effect relationship with the economic downturn. The article suggests contrasting point of views on the debate as to whether the unemployment in the US is structural or not (Hall, p. 222). It also highlights whether the current rise in the normal ...