Unemployment rate
The share of a country's eligible, willing-to-work population that is unemployed, in percentage terms — a macroeconomic variable that rises in a slowdown and falls in an expansion.
In plain language
Not everyone without a job is counted as unemployed for this purpose. The measure counts only people who are eligible to work and want a job, but do not have one.
That share of the population, in percentage terms, is the unemployment rate. It moves with the economic cycle. It climbs when the economy slows and jobs disappear. It falls when the economy expands and new jobs are created.
How it works
The workbook gives no specific percentage, threshold or historical figure for the unemployment rate itself. It is discussed only as a qualitative macroeconomic variable, not as a computed number with a worked example.
The mechanism it does describe is a feedback loop. Rising unemployment lowers people's income, which lowers what they can spend, which can slow the economy further. Falling unemployment does the reverse: more people earning means more spending, which supports further growth. The workbook lists the unemployment rate, alongside GDP, inflation, savings rate and investment rate, as one of the variables macroeconomic policy, fiscal and monetary together, tries to manage.
A worked example
Illustrative — the workbook gives no numeric example of its own. Suppose an economy slows sharply and its unemployment rate rises from 4% to 7% over a year. Following the workbook's own logic, the newly unemployed households cut discretionary spending, which reduces demand for what other businesses sell, which can cost some of those businesses their own staff in turn. The slowdown that raised unemployment feeds on itself.
An analyst tracking a consumer-facing company would treat a rising unemployment rate as an early warning for that company's own sales, well before it shows up in the company's reported numbers.
Why NISM asks about it
Chapter 5, sections 5.2 and 5.3 (Basic Principles of Macroeconomics, and Introduction to Various Macroeconomic Variables), lists the unemployment rate as one of the core variables macroeconomic policy targets. Expect a question testing the direction of the relationship, unemployment rising in a slowdown and falling in an expansion, rather than any figure.
Common exam traps
- The workbook gives no numeric definition or threshold for the unemployment rate. Do not invent one, and do not import a figure from a different paper's workbook or from current news.
- Unemployment rate is one of several macroeconomic variables the workbook lists together with GDP, inflation, savings rate and investment rate. Do not confuse it with inflation, a separate variable measured by WPI and CPI, even though both are policy targets in the same chapter.
Check yourself
1.Which economist does the workbook cite for the view that governments could change the economic performance of industries by adjusting tax rates and government spending?
- a)Adam Smith
- b)John Maynard Keynes
- c)Milton Friedman
- d)David Ricardo
Show the answer
Answer: (b) John Maynard Keynes
British Economist John Maynard Keynes (1883–1946) believed that governments could change economic performance of its industries by adjusting tax rates and government spending.
The workbook cites him to justify why economic analysis belongs in a research analyst's work at all: therefore, as growth depends largely on the economic environment, it becomes important for analysts to understand the economy.
The focus areas that follow: changes in various macro-economic factors like national income, inflation, interest rate and unemployment rate · fiscal and monetary policies and their impact on the economy · flows from Foreign Direct Investment (FDI) and Foreign Portfolio Investors (FPIs) · savings and investment patterns · global factors that impact the GDP growth based on export and import transactions.
Those five items are the skeleton of Chapter 5, Economic Analysis, which carries 5% of the paper — so learning them here pays twice.
The two levers Keynes named — tax rates and government spending — are together what the syllabus later calls fiscal policy, as distinct from the monetary policy run by the central bank.
Where this is taught
Free preparation for NISM Series XVRelated terms
- InflationA sustained general rise in the price level, which erodes what a rupee buys — and the reason a nominal return has to be deflated before it means anything.
- Monetary policyThe central bank's management of money supply and interest rates to promote growth and hold prices stable — expansionary when it wants to push the economy up, contractionary when it wants to cool it.
- Theory of the firmThe microeconomics of how a firm decides its inputs, outputs, prices, production levels, profits and losses — extending individual decision-making up to the level of a business.
- MacroeconomicsThe study of the economy as a whole — the aggregate supply and demand factors such as GDP, unemployment, inflation, savings and investment, and the public policies that move them.