Do changes in Aggregate Demand effect unemployment?

This is probably and excessively stupid question... but is it only a change in aggregate supply that influences the level of unemployment, or would a change in aggregate demand also effect it?

Thanks

The aggregate demand will definitely affect employment. For example, if AD curve shifts to the right (increases) then employment increases because the economy is growing, and there is more output, therefore firms will want to employ more workers to meet the demand.

Whereas if aggregate demand shifts to the left (decreases) then unemployment increases, because the economy's growth is shrinking, thus less output, therefore firms will need to make people redundant to reduce costs, because there is low demand for their goods and services if the economy is shrinking.


Hope this helps

So unemployment would fall, unconditionally? I mean, what if the increased demand was serviced through capital intensive production methods - rather than labour intensive production methods?

say one sector of the economy lowers prices because of an investment in capitol which lowers its unit costs some of the money that people save will go on to be spent in other areas of the economy which are labour intensive like service industries which will have to employ more people to cope with the increased demand. Because the whole of the economy is linked you couldn't have an increase in AD solely caused by capitol intensive production methods being used.

I'm kind of understanding this, but how can you guarantee that the labour intensive industries will be able to hire the amount of people who become unemployed from capital industries.

Firstly, if industries are already highly capitol intensive then an increase in the productivity of capitol or an increase in capitol investment will not lead to significant unemployment but the idea on an industry level is as follows. An increase in the Marginal Product of Labour because of better capitol makes each until of labour more efficient will shift the supply curve outwards increasing supply of the product and prices, so the increased level of capitol wouldn't increase unemployment in this situation. If each unit of labour is more efficient - say because each lumberjack now has a chainsaw rather than an axe then that doesn't mean we fire all the lumberjacks until we are producing the same amount of product that we were before, it means that we can produce more logs i.e. supply of logs expands and the price of log falls so the demand for logs will be bigger.

This is a good article to explain what I'm talking about http://http://www.economicshelp.org/blog/6717/economics/the-luddite-fallacy/

At the bottom of that link, it did say that the government should have done more to address the sudden unemployment of the workers who lost their jobs. You could say that at the moment the government is also struggling to get people in jobs. If industries are further capitalised, won't we see the government struggling even more and there being an even greater time period of restructuring to get those who become unemployed into a job. To me that would be as good as saying that the capital investment will at a certain point cause unemployment.

Another way of putting what I'm saying: If what you're saying is true (that workers who lose jobs can do something else), why is there even unemployment at the moment.