Monetary Theory and Policy - Essay Example

Currently, there is evidence that changes in the unemployment levels may be either good news or bad news in the Wall Street depending on the circumstances of these changes and the market trends. Importantly, it is worthy to understand the market factors that impacts on employment levels. Besides, whether the market is at expansion or contraction stage is crucial while determining the response of the stock market. On this note, the decrease of the unemployment rates within a country can be good or bad news depending on the market trends.

Traditional economic theories have derived a relationship between economic development and the unemployment levels within a country. The argument is that high unemployment levels within a country indicates a slow economic growth and may depict a weak economy. On the other hand, low unemployment rates indicate economic developing and a stronger economy. The implication is that low unemployment rates is good news for the economy and the society must anticipate development in future. However, a number of instances have shown a complete different image of the stock market.

As observed, an announcement of low unemployment rates in the US comes before the announcement of a drop in the stock prices in the Wall Street. For instance, in 2015, the US labor department has recorded an increase of 800, 000 jobs in February, which was followed by a 3%, fall in the Dow Jones Industrial average (Cogley 1-2). This situation has raised a controversy as more analysts point this to an anomalous change in the stock price market. This has led to the idea that the decrease in the unemployment rate is a bad omen that indicates a higher level of inflation in future of the economy.

This is against the traditional theories that perceived employment as a positive economic factor that can drive market growth. More contemporary theories of economy have shown that there are times when good