Macro Current Event 3

Posted: October 17th, 2013

Macro Current Event 3

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Macro Current Event 3

            An unemployment lockdown refers to a situation where most people who would have formed part of the number of unemployed are imprisoned. When a large number of the unemployed are in prison, the unemployment figures fall. Normally, unemployment figures do not capture the number of people in federal jails and prisons (Alden, 2011). This omission causes a dip in the number of people counted as unemployed and consequently a fall in the unemployment rate.

The unemployment rate is a very important economic indicator. It can be used to analyze the rate of economic growth of an economy and make policy decisions. A low unemployment rate means the economy is performing well. The omission of prisoners and those in detention in the calculation of economic indices such as employment gives a false picture of the economic situation. It is crucial to note that many economic activities occur within the prisons. Prisoners consume goods and services. Some are leased to work in private firms.

The figure below shows a curve of the unemployment rate of the USA courtesy of http://www.amosweb.com/images/UnUR001w.gif. The graph shows the declining unemployment level over the years.

Prisoners form an important part of the economy since they also contribute to the GDP of the country. Their contributions should therefore be drafted into economic calculations. An example showing their contribution can be illustrated using the aggregate demand (AD) equation below.

AD = I + G + C + X – M

Where, I = Investment, G = Government Expenditure, C = Consumption, X = Exports, M = Imports and AD refers to the amount of goods and services produced by an economy and which forms the GDP. Assume that C comprises Cⁿ and C^p where, C^p = consumption made by the incarcerated population. C^p forms a substantial amount of consumption expenditure and forms a part of the GDP. When prisoners consume, they cause an increase in the GDP implying that the economy is growing. Prisoners participate in the economic activities of a country in production and consumption. Their activities should be covered in the calculation of economic activities in order to project the real picture of the economy.

References

Alden, W. (2011, May 25). America’s Prison Epidemic Drains Economy, Doesn’t Register in Unemployment Stats, Report Says. The Huffington Post. Retrieved from http://www.huffingtonpost.com/

Unemployment Rate. (2013). (Graph illustration of USA unemployment rates). AmosWEB Encyclonomic WEB*pedia. Retrieved from http://www. AmosWEB.com, http://www.huffingtonpost.com/