The effects of unemployment

Overview

Recall questions on what unemployment does to consumers, firms, workers, the government and wider society, and on hysteresis.

What you need to know

Answer each one before you reveal it.

Questions from this subtopic

Each one with the model answer underneath.

1. 1

   How does unemployment affect consumers through reduced income?

   Model answer

   Unemployed individuals lose their regular earnings, directly reducing their purchasing power.

2. 2

   How does unemployment affect consumers' living standards?

   Model answer

   Loss of income forces consumers to reduce spending on goods and services, lowering their material standard of living.

3. 3

   How does unemployment affect consumer confidence?

   Model answer

   Unemployment reduces confidence about future income and job security, leading to more cautious spending behaviour.

4. 4

   How can unemployment lead to poverty for consumers?

   Model answer

   Prolonged loss of income can push individuals and families below the poverty line, especially if savings are depleted and benefits are inadequate.

5. 5

   What are the effects of unemployment on firms?

   Model answer

   Reduced consumer demand for goods and services, but also a larger pool of available labour which may reduce wage pressure.

6. 6

   How does unemployment cause skill atrophy among workers?

   Model answer

   Skills deteriorate through disuse during periods of unemployment, making workers less productive.

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