AM15 M5 Pov & Unemp

Questions:

1. Explain why the War on Poverty program launched by Johnson, and similar programs around the world, are based on a faulty diagnosis of the causes of poverty, which is why they apply faulty remedies, which cannot work to eliminate poverty.

Answer.Johnson and others recommend that education and skills are necessary to eliminate poverty and they

launched training sessions but poverty increase after the war on poverty rather than decrease because

when there are no employment opportunities for worker then how they use their skills which they learn

from training sessions. Employment creation would reduce the poverty of the people and the country. As

the increase in employment increase the productivity of the country as more people use their capacity. GNP

of that country increase where is full employment (means anyone who wants to do a job get a job) this

increase in GNP will reduce the poverty of the country.

2. Explain the key differences between the Employer of Last Resort ELR or Job Guarantee program as a means to reduce poverty as opposed to the standard approaches of providing training and education to the labor force.

Answer.This employer of last resort concept introduce by Minsky, he has a view that a federal government should

act as an Employer of last resort and give a job to those people who are willing to work. This will increase

the productive capacity of the country. According to Minsky, the only solution to reduce poverty is by

giving employment opportunities to people. Other standard approaches focused on the provision of

training and skills to reduce poverty but Minsky said it’s the second step. First is giving employment

opportunities then after this people will get training and improve their skills.

3. Explain why widespread involuntary unemployment throughout the world provides a glaring demonstration of failure of both the capitalist system to provide prosperity for all and the failure of capitalist economic theory to describe the real world around us. Explain why Keynesian policies of expansionary monetary policy create inflation a long time before unemployment is eliminated.

Answer.Capitalist has a rational approach and are against of full employment because unemployment is

beneficial for them because when there is a lot of job opportunities workers become choosy and

quitting of the job is easy for them because in full employment they have opportunities of getting a new

job and have the option of forming unions. Moreover, capitalists have believed that the wealthy class is job

creators so we have to give subsidies and set them free from taxes and they will create more jobs. But in

a great depression, its proved wrong as the richer had imposed with lower taxes and low regulations but

they had not created job opportunities. So capitalist theories are not providing jobs and increase

unemployment. A Keynesian policy of expansionary monetary policy aims to increase aggregate demand.

This increase in demand will lead towards higher prices and in expansionary monetary policy interest

rate cuts more money circulates in the country this will create employment opportunities as money is

invested in some projects but before the creation of employment opportunities, the inflation rate is high. Minsky

has a view that If aggregate demand is increased by an increase in productivity of the country then inflation

is not bad. But giving full employment opportunities to a country is not an easy task and private as well

as Government sector has not had the capacity .