Very Short Question Answer

1. What is unemployment?

Unemployment is defined as the non-availability of jobs or works for people who are able and willing to work at the existing wage rate. It is a problem to both developed and developing countries. It creates problems like poverty, inequality, robbery, prostitution, theft, crime etc.

2. What are the various types of unemployment?

The types of unemployment are as follow:
i. Open unemployment
ii. Under unemployment
iii. Cyclical unemployment
iv. Frictional unemployment

3. What do you mean by cyclical unemployment?

Cyclical unemployment is defined as the type of unemployment that results due to operation of trade cycle or business cycle.

4. State the Say’s law of market.

Say’s law of market states that supply creates its own demand.

5. Write down any two implications of Say’s law of market.

Any two implications of Say’s law of market are as follows:

i. Economy is self- adjusting and it is not necessary to interfere the economy.
ii. There is no general over production. It is because increase in production results increase in income of factors of production and increase in income of factors of production leads to increase in demand for goods and services

Short Question Answer

1. Define unemployment. Explain the different types of unemployment.

Unemployment is defined as the non availability of jobs (works) for people who are able and willing to work at the existing wage rate. It is a problem to both developed and developing countries. It creates problems like poverty, inequality, robbery, prostitutions, theft, crime etc. Therefore, solving unemployment problem of creating employment opportunities has been major objective in all economies of the world.

The major types of unemployment are as follows:

i. Open unemployment: Open unemployment is defined as the situation in which some workers have no any work to do. They are willing to work at the existing wage rate but they are forced to remain unemployed in the absence of work. These workers are completely idle. Such kind of unemployment is found in the developed countries like USA, UK, Japan, etc.

ii. Disguised unemployment: Disguised unemployment is defined as the situation in which a person seems as employed but in fact he is not employed. In this type of unemployment, the unemployed person is not visible or he/she is hidden. That’s why, this type of unemployment is also known as the hidden unemployment.

iii. Cyclical unemployment: Cyclical unemployment is defined as the type of unemployment that results due to operation of trade cycle or business cycle. During the period of Great Depression in 1930s, large number of labour force was unemployed in the developed countries, especially in USA and Europe.

iv. Seasonal unemployment: Seasonal unemployment is defined as the situation in which people are out of work and looking for a job during the off-season. For example, farm labours remain unemployed except planting and harvesting season.

v. Frictional unemployment: Frictional unemployment defined as the situation in which people are looking for new or better job and employers are looking for right workers. It is also known as the search unemployment because it occurs when people leave job and searching for new job.

vi. Structural unemployment: Structural unemployment is defined as the situation which occurs due to the changes in structure of the economy. The main cause of structural unemployment is a mismatch between the skills needed for available jobs. This kind of unemployment is usually exists in the developing countries like Nepal where unemployment is basically structural in nature.

vii. Educated unemployment: Educated unemployment refers to unemployment among the educated people, i.e. matriculates and higher educated. This is the problem of both developed and developing countries. Some of these people may be openly unemployed or under employed.

2. Critically explain the classical theory of employment and output.

The main points of criticism against classical theory of employment are as follows:

i. Under-employment equilibrium: According to classical economists, full employment is a normal feature and involuntary unemployment is impossible. But, Keynes has shown the possibility of under-employment and not full employment in the real capitalist world.

ii. No automatic adjustment: Classical economists believed that economic system is automatic and self-adjusting in character. But this belief of classical economist has been rejected by Keynes.

iii. Government intervention: The classical economists were against government intervention in the economic activities carried out by private sector. But Keynes recommended government intervention through public expenditure in order to save economy from uncertainties of private investment.

iv. Role of money: For the classical economist, money is only a veil and its function is to act only as a medium of exchange. But money has other several functions like store of value, transfer of value etc.

v. Saving-investment equality: Keynes also criticized the classical version of saving-investment equality. According to Keynes, income makes saving and investment equal but not a rate of interest as explained by classical economists.

vi. Long-run analysis: The classical economists provided long-run analysis. According to them, there may be temporary imbalances or unemployment in the economy. According to Keynes, actual problems are short-run problems and they must be given greater importance.

vii. Assumption of perfect competition: The classical theory is also based on the unrealistic assumption of perfect competition which does not exist in the real world.

viii. Not a general theory: The classical theory of employment is not a general theory. It deals with the special case of full employment only. According to Keynes, there may be full-employment, under-employment and unemployment.

ix. Not a practical theory: The classical theory has little practical significance. It does not provide any solution to the problem of unemployment and trade cycles.

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