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Correlations Between Recessions And Unemployment Essay

778 words - 4 pages

The whole world along with the United States has experienced an economic downturn beginning with the recession in 2008, and unemployment from recessions affects all of society. There is always unemployment, it is natural, and thus dubbed the Natural Rate of Unemployment, and is normally 3%-5% of the labor force, due to frictionally unemployed workers with skills readily available and are either between jobs or fresh out of the education system. However, during recessions, economies face more severe unemployment rates. To completely understand unemployment and the recessions which cause it, one must know how to define GDP which defines recessions. GDP which is short for Gross Domestic Product ...view middle of the document...

The graph below depicts how the GDP fluctuates in comparison with time; expansions and contractions may be seen, as well as highs and lows, or peaks and troughs within the business cycle.

With key economic concepts revealed, analysis of the article may proceed to a better understanding of the economic situation. The nation, along with many other countries around the world is experiencing a “recessionary gap” within the context of the business cycle. The recessionary gap is illustrated through a macroeconomic graph depicting the relationship between varied components. The Aggregate Supply (AS) is the market’s total supply, Aggregate Demand (AD) is the market’s total demand, and Long Run Aggregate Supply (LRAS) is the point where the whole economy is used optimally. Ideally, the AS curve intersects the AD curve where the LRAS line runs downward vertically, but this is only in the model where an economy is at market equilibrium. When the market is experiencing a recessionary gap, characterized by unemployment, decreased Real GDP, and economic stagnation caused by decreases in government and consumer spending, the AD shifts leftwards indicating the decrease, and a gap forms in between where the AD and AS intersect, and where the LRAS line runs downward, hence the illustration of the graph.

The article argues that the recessionary gap formed and the contraction that has occurred is a result of a loss in...

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