Eurozone and Macroeconomic goals
Cyclical unemployment
This type of unemployment is often caused by the contraction phase of the business cycle. That usually is when the demand for the services and goods falls severely. This typically causes the business to lay off the massive number of employees to cut costs. This type of unemployment creates more unemployment. The dismissed workers usually have very little money to buy the personal needs that they desire. This further lowers the demand. When cyclical unemployment starts, economies are generally under recession; this means that business is on hold until they become sure that the downturn is so severe to warrant layoffs before initiating them. When this type of unemployment happens, businesses do suffer a significant loss of their net worth as the stock prices plunge.
Possible effects
Unfortunately, cyclical unemployment usually causes the self-fueling downward spiral. The freshly unemployed individuals typically have less disposable income, which generates a substantial low demand for more business revenue, leading to more dismissal and layoffs. Without adequate intervention by the Euro group, the spiral is likely to continue until the supply fails to meet the lowered demand. This height of unemployment was witnessed during the great depression that lasted almost a decade. Even though the money plans were greatly implemented at this particular time, but it was never enough. Because this type of unemployment can go very spiral, the government or the euro group must end it. The easiest way to do this is by the expansionary monetary policy and beginning to lower the interest rates or put in use other innovative methods to put a considerable influence on the economy.
Monetary authorities
The European Central Bank is responsible for overseeing the EU monetary policy. Its main activities in this area include ensuring the stability of the prices that is below 2% but also close to 2% to evade the dangers of inflation. The ECB is also responsible for regulating and managing the EU money supply and interest rates. Whenever any European country joins the group, its central bank must cede much of its power. The European Monetary Union is mostly in charge of establishing the fiscal policy, and it gives the guidelines governing the issuing of the euro and price stability within the EU. The institution has the primary objective of finalizing the completion of the internal market by removing the exchange rate fluxes and abolishing the cost essentials in exchange transactions as well as the costs of hedging against the exchange fluxes.
Long-run aggregate supply
The long-run aggregate supply curve relays the output level produced by organizations to the price level in the long run. The long-run aggregate supply curve is usually a vertical line at the economy’s potential level of output. There is often a single wage at which employment reaches its natural level
Figure1: Natural Employment and Long-Run Aggregate Supply.
Short-run aggregate supply
The model of aggregate demand and long-run aggregate supply foretells that the economy will ultimately move toward its potential output. Realizing how the nominal wage and price stickiness can eventually cause a real GDP to be either below or above the potential in the short run reflects the response of the economy to a change in aggregate demand.
Figure2: changes in Short-Run Aggregate Supply
A change in the price level produces typically a difference in the aggregate in the quantity of both services and goods supplied. A change in the amount of the services and products provided at every level in the short run is usually a change in short-run aggregate supply
Main effects of rising prices in the economy
The main effect of the rising results is that it first erodes the purchasing power of the currency due to arise in the costs across the economy. The increasing prices necessitate costs to rise across the basket of services and goods like the one that comprises the most common measure of price changes the consumer index. Secondly, it encourages investing and spending, a foreseeable to decreasing purchasing power is to purchase now rather than later. For the consumers, this would mean filling up gas tanks, stuffing their freezers. Still, for businesses, it would mean making capital investments that under diverse conditions might be put off until later. Third, inflation would raise the cost of borrowing, and the EU can manage this by using the appropriate monetary policy. They entirely rely on the relationship between interest rates and inflation. With the low-interest rates, individuals and companies can borrow reasonably to start a business, employ workers, and even earn a degree. Lastly, increase reduces unemployment as wages tend to be sticky, meaning that they alter slowly in response to economic changes.
The two examples of the fiscal policy are tax cuts and increased government spending. Both of these policies are always intended to increase the aggregate demand while backing to deficits or drawing down the budgets. They are generally employed by the government or organizations like the EU during recessions or amid fears of one to spur a recovery.
Crowding out
Crowding out is usually associated with government deficit financed by issuing non-money claims.