Sample Essay

Frictional unemployment is the kind of unemployment that exists as workers move from one industry to another. Structural unemployment on the other hand exists because of changes in technology and thus some people find themselves jobless since their skills are not required any more.

In addition, people may find themselves jobless if the sector they work in is affected by business cycles. This may include the tourism sector where you may find that tourists come either in the summer or in winter. In formulating the monetary policy, the Federal Reserve needs to analyze the effects of these policies on the different kinds of unemployment, and seek ways to reduce it.

In formulation of the monetary policy, the fed also needs to put in to consideration the nature and size of the unemployment rate existing within the economy. This ensures that the fed can implement a monetary policy that will lead to increased performance in certain sectors of the economy.

Unemployment usually leads to higher inflation, a key issue that the monetary policy that the Federal Reserve seeks to minimize. In avoiding this, the fed has to calculate the inflationary cost of low unemployment as well as the unemployment cost of low inflation using the Phillips curve. This will be decided and analyzed based on fixed expectations, adaptive expectations and rational expectations.

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