Principles of Macroeconomics Essay

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Macroeconomic News Analysis: Unemployment

According to recent figures reported in the New York Times article "Consumers push economy to a gain of 2%," the U.S. economy expanded 2% in the third quarter, a slightly swifter pace than had been anticipated. Consumer confidence is on the rise thanks to the fact that the "market has stabilized, households have been buoyed by lower energy prices, until recently a rising stock market and a slight improvement in employment. After years of shedding debt, there are also signs that consumers are starting to borrow" again (Schwartz 2012:1). According to the Keynesian theories of the business cycle, consumers during a recession will hold onto their money and it is necessary for the government to infuse cash into the economy, to bring it to a state of health once again. Only when people feel more secure about their jobs will they spend money again. The federal government's increased defense spending coupled with its stimulus spending has thus improved the economy overall.

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Despite the current obsession with the national debt, Keynes believed that governments should spend at a deficit when the economy was weak and unemployment was high, to encourage consumption, and should only try to balance the budget during prosperous times, so there would be money to stimulate the economy during recessions. Keynes believed that the government had a responsibility to cushion the ebbs and the flows of the business cycle, which he did not believe would naturally correct themselves under most circumstances. Keynes believed that government spending on infrastructure and defense could buoy up the economy, until consumer demand and spending allowed the private sector to recover.

However, despite the expansion of consumer spending, unemployment is still high in America today. The 7.8% unemployment rate is much higher than would normally be expected during a moderate period of growth. There are also other….....

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