Unemployment refers to a situation where individuals want to work but are unable to find a job, and a result labour resources in a economy are not utilized to their full capacity. Macroeconmic include monetary and fiscal policy which focus on increasing the demand for labour. Alternately, microeconomic policies influence the supply of labour. However, the effectiveness of these policies differs since they can have short-term or long term effects on the unemployment rate. The policies also tend to be influential in targeting certain types of unemployment.

The government’s objective is to reach full employment in the workforce. However, full employment is unachievable since their will always be a natural rate of unemployment comprising of structural and frictional unemployment. Thus, full employment is considered as the non-accelerating inflation rate of Unemployment (NAIRU). The government policies objective is to keep NAIRU between 5% and 7%. Since, unemployment below the NAIRU will cause wage inflation.

An expansionary monetary policy is implemented to increase the level of aggregate demand present in the economy. Consequently, causing an increase demand for labour and primarily decreasing cyclical unemployment.

Monetary policy uses the cash rate to influence the interest rate. The high unemployment rate caused RBA to cut interest rates to a historically low rate of 2.5%. However, the cut had a short-term effect rather than a long-term implication on the economy. The decrease in interest rate caused the ‘peak’ of the unemployment (6.4%) to only be delayed. Thus, didn’t cause a reduction in the unemployment rate. According to Glen Stevens, the low cash rate isn’t boosting consumer and investor confidence. Thus, isn’t significantly increasing aggregate demand. Thus, the policies capacity to decrease unemployment is limited since demand for labour is derived demand. Thus, in this case monetary policy did not act as a long-term solution and hasn’t caused...