Government mandates for rapid decarbonisation and a transition to green technology have prompted massive investments in renewable infrastructure and smart-grid automation. While these investments have significantly enhanced the economy's productive potential and labor productivity, a combination of high fiscal taxation on carbon-heavy industries and stagnant wage growth has dampened consumer confidence and overall consumption.
Consequently, aggregate demand is projected to expand at a sluggish pace, far below the rate of potential output growth, leading to fears of mounting joblessness. Any further external supply shocks, such as spikes in critical mineral prices or international trade disputes over green subsidies, could further depress demand and increase cyclical unemployment.
Extract D states that 'aggregate demand is projected to expand at a sluggish pace, far below the rate of potential output growth' and expresses concern over mounting joblessness.
Explain why unemployment is likely to rise if aggregate demand grows more slowly than the potential output growth (underlying trend rate of growth) of the economy.
327 exam-style questions on AQA A Level Economics 2.3 Economic performance, covering 2.3.1 Economic growth and the economic cycle, 2.3.2 Employment and unemployment, 2.3.3 Inflation and deflation, and 2.3.4 Possible conflicts between macroeconomic policy objectives. Each one has a worked solution and a mark scheme showing where the marks go.