Long Term Unemployed

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Source :The Financial Times
The United States economy runs on a huge budget deficit, for fiscal year 2014 projected to be $744 billion. That’s because US government spending is budgeted at $3.778 trillion, while government revenue will only be $3.034 trillion. As a result decisions were taken to cut spending across the board commonly known as sequestration. The sequestration would have so many effects but in line with my article I would be talking about its effect on individual consumer spending and unemployment. SUMMARY

This article from The Financial Times talks about the effects of the across the board spending cuts of the government. The spending would hit the already unemployed earliest by cutting their benefits by up to 9.4%.With about 3.8 million unemployed for more than six months. As a means of reducing huge deficits government cuts are going to be up to a sum of $85 billion until the fiscal year in September and $1.2 trillion over a decade. Now the question is, would we be better off? These budget cuts are going to come at a huge cost to the U.S economy which I analyze below. ANALYSIS

The budget cuts are first of all going to cost a lot of people their jobs. Unemployment going up is really bad for the economy regardless of the fact that they would be taking benefits from the government and increasing government spending. Now people who have jobs might have had their hours reduced at work. What does this mean to the economy? Well first of all people losing their jobs and hours being cut at work means lower incomes. When people receive lower incomes they tend to spend less, which in effect reduces aggregate demand. A reduction in aggregate demand not caused by change in price level tends to shift the aggregate demand curve to the left from D1D1 TO D2D2 as shown in the diagram below. price level d1 eq. output s1...