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Chapter 13. Economic Challenges. U.S. Unemployment Rate- Education Level –AJC 8/28/08. U.S. Unemployment- Gender (Age 20 and older). U.S. Unemployment Range Age (2 nd quarter, April-June). Unemployment by Gender and Race. A. Determining the Unemployment Rate.
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Chapter 13 Economic Challenges
A. Determining the Unemployment Rate • A nation’s unemployment rate is an important indicator of the health of the economy. • The Bureau of Labor Statistics polls a sample of the population to determine how many people are employed and unemployed. • The unemployment rate is the percentage of the nation’s labor force that is unemployed. • The unemployment rate is only a national average. It does not reflect regional economic trends. • The labor force is composed of civilians age 16 and older who have a job or are actively looking for a job.
B. Unemployment • Unemployment: Some types have more serious consequences for the economy and the workers than others.
C. Types of Unemployment Frictional Unemployment • Occurs when people change jobs, get laid off from their current jobs, take some time to find the right job after they finish their schooling, or take time off from working for a variety of other reasons Structural Unemployment • Occurs when workers' skills do not match the jobs that are available. Technological advances are one cause of structural unemployment Seasonal Unemployment • Occurs when industries slow or shut down for a season or make seasonal shifts in their production schedules Cyclical Unemployment • Unemployment that rises during economic downturns and falls when the economy improves
Types of Unemployment Practice • Which of the four types are represented by the following scenarios. Write F for Frictional, ST for Structural, SE for Seasonal and C for Cyclical. • ____1. Many of the workers lost their jobs two years ago when the local steel mill automated much of its operations. Most of these people do not have the skills to qualify for other jobs. • ____2. People in a resort area that is busy in the summer and winter try to make enough money during these times of the year to tide them over during the slow times. • ____3. Several thousand people have moved to the Bay Area in the last six months, and quite a number remain unemployed and are still looking for jobs they want. • ____4. More and more miners in Coal Valley have lost their jobs as natural gas and oil replace coal as the fuel in the nation’s factories.
____5. The government stopped funding for an advanced fighter plan. This caused major cutbacks at Dynaflyte Manufacturing and led to layoffs at other companies that manufacture parts for Dynaflyte. • ____6. Many of the migrant farmers in Sunrise Valley have steady jobs from March until October. In the other months, they either remain unemployed of travel to other regions in search of work. • ____7. Unionized textile mill workers in Regentown have been unemployed since they went out on strike and were replaced by nonunion workers. Many are still searching for work. • ____8. Unemployment in Cylinder City is higher than in other manufacturing centers because the recession has squashed auto sales. Two-thirds of the country’s cars are manufactured here.
D. Full Employment • Economists generally agree that in an economy that is working properly, an unemployment rate of around 4 to 6 percent is normal. • Sometimes people are underemployed, that is working a job for which they are over-qualified, or working part-time when they desire full-time work. • Discouraged workers are people who want a job, but have given up looking for one. Full employment is the level of employment reached when there is no cyclical unemployment.
E. Inflation • Aggregate Supply & Aggregate Demand • Aggregate means total • Aggregate Supply- total goods and services produced throughout the economy. • Aggregate Demand- total amount of spending throughout the economy.
Inflation: The Effects of Rising Prices • Inflation is a general increase in prices. • Purchasing power, the ability to purchase goods and services, is decreased by rising prices. • Price level is the relative cost of goods and services in the entire economy at a given point in time.
G. Price Indexes A price index is a measurement that shows how the average price of a standard group of goods changes over time. • The consumer price index (CPI) is computed each month by the Bureau of Labor Statistics. • CPI is determined by measuring the price of a standard group of goods meant to represent the typical “market basket” of an urban consumer. • Changes in the CPI from month to month help economists measure the economy’s inflation rate. • The inflation rate is the percentage change in price level over time.
H. Types of inflation • Inflation means that aggregate demand exceeds aggregate supply • Inflation can happen because of the following reasons: rising wages, an increased money supply, and increased spending relative to the supply of products. • Deflation- when aggregate demand decreases more rapidly than aggregate supply. So sellers are forced to lower prices to attract buyers. • Hyperinflation:Inflation that is out of control
Hyperinflation: Inflation that is out of control
Causes of Inflation • Quantity Theory – too much money in the economy causes inflation. The money supply can be used to control prices • Demand-Pull Theory – high demand for goods and services, pulls prices up. Ex. Popular video game • Cost-Push Theory – high costs push producers to raise prices. Ex. Tomato crop destroyed by hurricane
I. Effects of Inflation A. Decreased Purchasing Power B. Decreased Value of Real Wages C. Increased Interest Rates D. Decreased Saving and Investing E. Increased Production Costs
GDP Per capita GDP GDP growth rate CPI The rate of inflation. The standard of living. Economic expansion or contraction. Output of goods and services of an economy. Economic Measurements
J. Other Costs of Inflation • Shoe-leather cost: people hold less cash on hand b/c it loses value, therefore they must make frequent trips to the bank. • Menu cost: if inflation happens owners of a restaurant must reprint menus more frequently
H. Aggregate Supply & Demand Scenarios For each of the following aggregate demand & supply scenarios draw an AS & AD graph and show what would happen to either the supply or demand. Then complete the statement describing what would happen.
1.What will happen if consumers expect a recession? If consumer expect a recession then they will _________ ____________today as to "save for a rainy day". Thus if spending has _________, then our aggregate demand must _______. An aggregate demand decrease is shown as a shift to the _____ of the aggregate demand curve. This will cause both Real GDP to ________ as well as the price level. So, expectations of future recessions act to ______ economic growth and can cause _________.
1.What will happen if consumers expect a recession? If consumer expect a recession then they will not spend as much money today as to "save for a rainy day". Thus if spending has decreased, then our aggregate demand must decrease. An aggregate demand decrease is shown as a shift to the left of the aggregate demand curve. This will cause both Real GDP to decrease as well as the price level. So, expectations of future recessions act to lower economic growth and can cause deflation.
2.What will happen if foreign incomes rise? If foreign income rises, then we would expect that foreigners would ________ money - both in their home country and in ours. Thus, we should see a ____ in foreign spending and exports, which raises the _______________ curve. This shift in the aggregate demand curve will cause Real GDP to _____ as well as the price level.
2.What will happen if foreign incomes rise? If foreign income rises, then we would expect that foreigners would spend more money - both in their home country and in ours. Thus, we should see a rise in foreign spending and exports, which raises the aggregate demand curve. This shift in the aggregate demand curve will cause Real GDP to rise as well as the price level.
3. What will happen if Government spending increases? An increase in government spending causes an ________ in aggregate demand, as the government is now demanding more goods and services. So we should see Real GDP ____ as well as the price level.
3. What will happen if Government spending increases? An increase in government spending causes an increase in aggregate demand, as the government is now demanding more goods and services. So we should see Real GDP rise as well as the price level.
4. What will happen if workers expect future inflation and ask for higher wages? • If the cost of hiring workers has gone up, then companies will not want to hire as many workers. Thus we should expect to see the _______________ shrink, which is shown as a shift ________. When the aggregate supply gets smaller, we see a ________ in Real GDP as well as an ______ in the price level. This can be self-fulfilling.
4. What will happen if workers expect future inflation and ask for higher wages? • If the cost of hiring workers has gone up, then companies will not want to hire as many workers. Thus we should expect to see the aggregate supply shrink, which is shown as a shift to the left. When the aggregate supply gets smaller, we see a reduction in Real GDP as well as an increase in the price level. This can be self-fulfilling.
5. What will happen if foreign price level fall? If foreign price levels fall, then foreign goods become _____. We should expect that consumers in our country are now more likely to buy foreign goods and less likely to buy _______ made products. Thus the _________________ curve must fall, which is shown as a _______ ___________. A fall in foreign price levels also causes a _______ in domestic price levels as well as a ________ in Real GDP.
5. What will happen if foreign price level fall? If foreign price levels fall, then foreign goods become cheaper. We should expect that consumers in our country are now more likely to buy foreign goods and less likely to buy domestic made products. Thus the aggregate demand curve must fall, which is shown as a shift to the left. A fall in foreign price levels also causes a fall in domestic price levels as well as a fall in Real GDP.
13.3 Poverty and Income Distribution • Poverty Line: This is a measure of the level of income necessary to subsist in a society. Dependent on the cost of living and peoples' expectations. Usually defined by governments and calculated as that level of income at which a household will devote two-thirds (to three-quarters) of its income to basic necessities such as food, water, shelter, and clothing • Working poor • Uneven income distribution
