Question

Explain why when the Aggregate demand in the economy is expanding and unemployment is at 4.1% some people are simply delighted while others are very nervous

Answer 1

Increase in Aggregate demand leads to the rise in inflation. Rise in inflation sometimes provide incentives to business houses to increase sale and earn abnormal profits. Further, some more employment may be generated to unemployed.

Economy is operating close to natural rate of unemployment, hence, rise in aggregate demand would cause inflation which will hit common public adversely. Hence, public is not delighted at rise in aggregate demand. Further, government incentives and transfer payments may be discontinued owing to full employment.