Identify and Define: Unemployment
Unemployment refers to the situation in which individuals cannot find the job, but are able and willing to work at the prevailing wage rate (Mankiw, 2012). The unemployment rate refers to the number of unemployed people as a percentage of the country’s total labor force (Mankiw, 2012). The unemployment rate provides an understanding of the unused resources and spare capacity of the economy. By being a lagging indicator, the unemployment rate measures the effect of economic events thus determining the economy’s state or the health of business sectors in the country (Mankiw, 2012). In the situation when the country experiences high unemployment, it means that the economy is underperforming. On the other hand, a low unemployment indicates that the economy is expanding. The impact of the unemployment rate is felt in the growth of the economy, debt and taxes (Mankiw, 2012). When workers are unemployed, they lose wages while their purchasing power decrease which can result in unemployment to other people, creating a devastating effect on the economy. Similarly, when families lose wages, the country experiences reduced contribution to the economy in terms of the level of production workers would have provided.