The Macroeconomic Environment of Business Essay

The Macroeconomic Environment of Business - Essay Example This unemployment involves people being temporarily between jobs, searching for new ones; it is compatible with full employment. It is sometimes called search unemployment and is seen as largely voluntary. It arises because either employers fire workers or workers quit, usually because the individual characteristics of the workers do not fit the individual characteristics of the job including matters of the employer's personal taste or the employee's inadequate work effort. Structural unemployment involves a mismatch between the workers looking for jobs and the vacancies available. Even though the number of vacancies may be equal to the number of the unemployed, the unemployed workers lack the skills needed for the jobs - or are in the wrong part of the country or world to take the jobs offered. Structural unemployment is a result of the dynamic changes of a capitalist economy such as technological changes. Supply-side economic policies are tools which aim to increase aggregate supply in order to attain economic growth and low inflation. The central concept of supply side economics is Says law which states that "supply creates its own demand," or the idea that one must sell before one can afford to buy. Therefore good economic policy encourages increased production, rather than attempts to stimulate demand. Basically, supply-side policies' main concern is affecting a tax rate which strongly encourages working and investment. Thus, supply side policy is essentially interested in the type of taxes levied and the specific tax rate. Supply-side economists contend that tax reductions will negate inflation and increase economic growth through the following: 1. Investment and Savings-Lower taxes will increase disposable income and increase household savings. Similarly, tax reductions on business will increase the profitability of investment. In short, lower taxes will increase both savings and investment which will result in a nation's stock of capital. 2. Work Incentives-Lower personal income tax rates increase after-tax wages and thus encourage work. As a result, any people not already in the labor force will offer their services, and those already in the labor force will want to work more hours and take fewer vacations. 3. Risk Taking-Lower taxes will encourage risk takers like entrepreneurs to invest. On the other hand, demand side policies' main goal is the promotion of economic growth by affecting the level of aggregate demand. Discretionary fiscal policy is where the government deliberately changes taxes or government expenditure in order to alter the level of aggregate demand. An example is lowering the income taxes in order for consumers to have more disposable income to spend for goods and services. The government can also use monetary policy to monitor the growth of the aggregate demand by (a) controlling the level of money supply directly, (b)