i. Whenever resources are unemployed there is always some sort of waste.
ii. In the case of unemployment it manifests itself in the potential production of goods and services irretrievably lost.
iii. There are also other costs such as increased burdens to taxpayers to fund unemployment compensation programs and the individual cost in terms of a loss of self esteem and dignit

i. This may be possible if the number of new entrants into the labor force is increasing at a greater rate than the number of people who are becoming unemployed.
ii. Since the unemployment rate is a ratio and the numerator is growing more slowly than the denominator then the unemployment rate will fall.

1. The statement that supply creates own demand or equivalently that the aggregate in investment equals the aggregate saving always holds good in the ex post sense since it is simply an accounting identity.
2. Say’s law of markets, however, states that these two are equal in ex ante sense, i.e the total quantity which people produce i.e., aggregate supply must be equal to the total quantity which they plan to buy i.e., aggregate demand.

The components of aggregate supply are,
(i) Aggregate (desired) consumption expenditure (C).
(ii) Aggregate (desired) private savings (S).
(iii) Net tax payments (T) (Total tax payment to be received by the government minus transfer payments, subsidy and interest payments to be incurred by the government) and
(iv) Personal (desired) transfer payments to the foreigners (Rf) (eg. Donations to international relief efforts)

The aggregate demand is the amount of money which entrepreneurs expect to get by selling the output produced by the number of labourers employed. Therefore, it is the expected income or revenue from the sale of output at different levels of employment.
Aggregate demand has the following four components:
(i) Consumption demand
(ii) Investment demand
(iii) Government expenditure and
(iv) Net Export (export - import)

(i) The classical theory of employment is composed of different views of classical economists on the issue of income and employment in the economy.
(ii) Classical economists assumed that the economy operates as the live of full employment without inflation in the long period.
(iii) They also assumed that wages and prices of goods were flexible and the competitive market existed in the economy.

(i) Aggregate supply refers to the value of total output of goods and services produced in an economy in a year ie national product or income.
(ii) The components of aggregate supply are:
(iii) Aggregate (desired) consumption expenditure (C)
(iv) Aggregate (desired) private savings (S)
(v) Net tax payments (T)
(vi) Personal (desired) transfer payments to the foreigners (Rf)
AS = C + S + T + Rf
In this figure 2 aggregate supply curves are drawn for the assumption of fixed money wages and variable wages.

Explanation
(i) Z Curve is linear (fixed money wages)
(ii) Z₁ curve is non-linear (wage rate increases with employment)
(iii) When full employment level of Nf is reached output cannot be increased by employing more men.
(iv) So aggregate supply curve becomes inelastic (Vertical straight line).
(v) In reality aggregate supply curve will be like Z₁ .
(vi) If prices are high and wages low, the producers will employ more labourers.
(vii) 4YAggregate supply is an important factor in determining the level of economic activity.

(i) In the Keynesian model, output is determined mainly by aggregate demand.
(ii) The aggregate demand is the amount of money which entrepreneurs expect to get by selling the output produced by the labourers employed.
(iii) Aggregate demand (spending) is the amount that households, firms, the governments and the foreign purchasers would like to spend on domestic output
Aggregate demand has four components:
1. Consumption demand (C)
2. Investment demand (I)
3. Government expenditure (G)
Net Export ( export - import) (X - M)
AD = C + I + G + (X - M)

(i) Classical unemployment occurs when real wages are kept above the market clearing wage rate, leading to a surplus of labour supplied.
(ii) Classical unemployment is also called real wage unemployment.
(iii) Unemployment occurs when the worker is willing to accept (Real Wages)(RW) is in excess of those an employer is willing to pay (Market Clearing Wage)(MCW).
(iv) Real wage may be above the equilibrium level because of minimum wage policies or union bargaining.
(v) classical unemployment of Q₁-Q₂ can be solved by a wage cut.
(vi) If wages are allowed to fall to the market clearing level, unemployment is solved