A city council observes that the number of vacant shop units has increased while local household income has fallen. It is considering lower business rates f...
Question 1 Report
A city council observes that the number of vacant shop units has increased while local household income has fallen. It is considering lower business rates for one year.
(a) Which type of unemployment is most likely to have increased if the fall in income reduced demand for shop goods? [1]
(b) Explain how lower business rates could reduce this unemployment. [2]
Answer Details
(a) The likely type is cyclical unemployment, also called demand-deficient unemployment. Household income has fallen, reducing demand for shop goods, so shops need fewer workers. [1]
(b) Lower business rates reduce firms' costs. Keeping shops open, producing, and employing workers may then become more profitable or affordable. Firms may therefore retain workers or hire workers, reducing demand-deficient unemployment. [2]
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