Stabilizing the Economy

1. Unemployment and Inflation Stabilizing the Economy

2. Critical Thinking Questions • When you do not have any money explain your life style? • Movies? • Restaurants? • Sporting Events? • Shopping? • Unemployment causes uncertainty in the American Economy

3. Government Interference • Stabilization Policies • Attempts by the federal government to keep the economy healthy • Using monetary and fiscal policy • Threats to Economic Stability • Unemployment • Inflation

4. Measuring Unemployment • Unemployment Rate • Percentage of the civilian labor force that is unemployed but is actively looking for work • Current Unemployment Rate = 7.7% • Maintaining low unempl0yment is a major goal in stabilizing the economy • How might a country works towards unemployment?

5. Types of Unemployment 1. Cyclical • Associated with up or down fluctuation in the business cycle • Rises during contractions and recessions • Falls during recoveries and expansions 2. Structural • Caused by changes in the economy • Technology advances • Discovery of natural resources • Workers replaced by machinery/technology

6. Types continued….. 3. Seasonal • Caused by changes in the seasons or weather • Construction, snow removal, farmers, etc… 4. Frictional • Temporarily between jobs. • Firings, layoffs, voluntary searches for new jobs

7. Unemployment • Will unemployment ever be eliminated? • Full Employment • Unemployment rate is lower than a percentage established by economists’ studies • Currently full employment less than 5.5%

8. Inflation • Inflation • a rise in the level of prices of goods and services in an economy over a period of time. • Demand Pull-Inflation • Theory that demand increases faster than total supply, resulting in shortages that lead to higher prices • Cost Push Inflation • Theory that higher wages and profits push prices up • Stagflation • Combination of inflation and low economic activity