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The level of aggregate demand (AD) is expected to increase and this will drive the economy out of recession. This situation is illustrated by the following diagram:
Above we clearly see that AS1 shifts to the right to AS2 and AD1 to AD2 and the level of unemployment decreases. Another strategy that could be applied is training schemes and so unemployed acquire new skills and find a job in a new industry sector...
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Another strategy that could be applied is training schemes and so unemployed acquire new skills and find a job in a new industry sector. Considering the size of unemployment this strategy does not seem so effective and the cost for the government will be higher.
On the other hand, the wages reduction will have de-motivating effects to workers who may be unwilling to have a lower income...
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