Death of Australias Car Industry

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spending and saving by third parties in the economy leading to an overall larger decrease in spending than initially. This process is defined as the multiplier effect. In simpler terms the loss of the car industry will cause a decrease in aggregate demand, which will be subject to the multiplier effect. The decrease in aggregate demand will cause an overall reduction in the average price level and national income. Structural unemployment will also lead to under-utilization of the nations resources, increasing budget deficits, and there may be a turn towards protectionism and isolationist policies.

There are many approaches the government could undertake to reduce structural unemployment. The aim of these methods of government intervention is to improve the occupational and geographical mobility of structurally unemployed individuals. Occupational immobility occurs when there are barriers to the mobility of factors of production between different sectors of the economy leading to the underemployment of factors of production. Ways to increase occupational mobility is to increase public education and adult retraining programs to help people acquire skills that will be in high demand in the future, to give firms subsidies to provide training for their workers or they can lastly support apprenticeship programs or reduce unemployment benefits to encourage the unemployed to take available jobs. Geographical immobility is a situation where resources do not freely move from one location to another, specifically labour, as people are often reluctant to relocate for work. A way to increase geographical mobility is to provide tax breaks to encourage people to move to a certain part of a country where jobs exist. Yet any of these approaches would be an opportunity cost to the government and these policies have time lags (only effective in long term).