Transcript Unemployment & Inflation

Unemployment
Chapter 14, Sections 2

Nearly 50% of the U.S. population belongs to the
civilian labor force

At any one given time millions are without a job
(Nov 2009 unemployment rate 10%)

Full employment (Economic Social Goals of the
U.S.


Lowest possible unemployment rate, when economy
is still growing & factors of production are being used
as efficiently as possbile
Reached when unemployment rate drops below 4.5
%
Unemployment Rate
Unemployed – members of the civilian
labor force who made an effort to find work
in the previous month
 Unemployment rate –

# of unemployed / # in civilian labor force
2009 Unemployment Rate
(U.S. Bureau of Labor Statistics)
12
10
8
6
Unemployment Rate
4
2
0
January
May
September
Limitations of the
Unemployment Rate

Does not count labor force “dropouts”


Not classified as unemployed unless they
have been looking for a job
Does not include part-time workers

Just one hour at a minimum wage job is
considered employed
Types of Unemployment
1.
Frictional Unemployment
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
2.
Structural Unemployment

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3.
Short-term unemployment
Suffer little economic hardship
Skills required by employers do not match skills
possessed by workers
Workers either develop new skills or move to
another region
Cyclical Unemployment

Directly related to the business cycle
Types of Unemployment
(continued)
4.
Seasonal Unemployment


5.
Results from changes in weather or demand for
certain products
Happens yearly regardless of health of economy
Technological Unemployment


Workers with less skills, talent or education are
replaced by machines
Automation – production with mechanical or other
processes that reduce need for workers
Inflation
Chapter 14, Section 3
Measuring Inflation
(pg. 390, Figure 14.5)

To find inflation we must start with finding
the price level – the relative magnitude of
prices at one point in time

Select a market basket and construct a
price index

What are the three types of price indices
(review from chapter 13)?
Measuring Inflation
(continued)

Inflation is reported in terms of annual
rates of change of the price level
inflation rate = (change in price/beginning price) x 100

Deflation – a decrease in the general
price level
Post-World War 1 recession
 The Great Depression

Degrees of Inflation
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Creeping inflation – inflation in the range
of 1-3% per year
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Galloping inflation – intense form of
inflation that can reach 100-300% per year

Hyperinflation – inflation that is totally out
of control…500% + per year
Causes of Inflation
1.
Demand-pull theory – prices are “pulled up” by
excessive demand
2.
Demand-pull theory (alternate) – federal
government’s deficit spending
3.
Rising input costs drive up the cost of products and
cause inflation
4.
As wages increase, producers increase prices to try to
recover
5.
Excessive monetary growth
How would a sharp increase in inflation
affect the following people?
(answer in your notes)
1.
A person who has just withdrawn a
considerable amount from a savings account.
2.
A doctor or staff at a large hospital.
3.
A retired autoworker on a fixed pension.
4.
A borrower about to repay a loan.
Consequences of Inflation
(pg. 391, Figure 14.6)

Decreased purchasing power of the dollar

People change their spending habits

People speculate to take advantage of
higher price level

Alters the distribution of income
HOMEWORK
Chapter 14 Questions
13-23