Transcript Power Point

Chapter 13: Economic
Challenges
Unemployment
►4
Types of Unemployment
 Frictional Unemployment
►People are taking time to find
another job
Dissatisfied with current job
Time off for education, or
personal reasons
Unemployment
►4
Types of Unemployment
 Seasonal Unemployment
►Industry regularly shuts down
during a particular season
Ex. – Farm laborers travel across
the country to work seasonal
crops
Ex. - Tax preparation jobs
Unemployment
►4
Types of Unemployment
 Structural Unemployment
►Structure of the economy changes,
changing types of jobs available
 New technologies (farm jobs
disappear, new factory jobs)
 Consumer demand changes
 Globalization – companies relocate
jobs to other countries
Unemployment
►4
Types of Unemployment
 Cyclical Unemployment
►Contraction and recession cause
loss of jobs
Consumers have less money,
demand shifts left for most
products
Companies lay off workers to
accommodate this decrease
Unemployment
►The
Unemployment Rate
 U.S. Bureau of the Census polls
50,000 families to calculate % of
Americans who are looking for
work, but cannot find a job
 # of ppl. unemployed / # of
civilians polled
Unemployment
►The
Unemployment Rate
 An unemployment rate of 0% is
impossible
 Full Employment is when there is no
cyclical unemployment
 Economies are considered healthy
with an unemployment rate of 4-6%
Unemployment
► Problems
with using Unemployment Rate as
a Measure
 Does not factor in underemployment –
people working in jobs that are beneath
their qualifications
►Ex.
– someone with a college degree working
part time for $8.00 an hour
 Does not factor in discouraged workers –
people who can’t find a job, and are so
frustrated that they quit looking
Inflation
►Inflation
is a
general increase
in prices
 Movie Ticket in
1950 - $0.25
 Movie Ticket in
2005 - $7.50
Inflation
reduces Purchasing Power
– the ability of your money to
purchase goods and services
 Say you have $3.00, and tacos
cost $1.00 each
 Your money is worth 3 tacos
►Inflation
Inflation
reduces Purchasing Power
– the ability of your money to
purchase goods and services
 If you hold your $3.00 for a few
years, and prices inflate to $1.50
for tacos…
 Your money is worth 2 tacos!
►Inflation
Inflation
►Measuring
Inflation
 Level of Prices is calculated by using
Price Indexes
►Consumer
Price Index – Bureau of
Labor Statistics chooses a “market
basket” of commonly bought
goods, and tracks changes in price
Inflation
►CPI
= Current Price
X 100
Base Period Price
Inflation
►Types
of Inflation
 Creeping Inflation
►1-3%
per year, causes no problems
 Chronic Inflation
►Steady
increase each month, takes
away incentive to save and invest
 Hyperinflation
►Out
of control, prices could double
every month
►Leads to total economic collapse
Inflation
►Causes
of Inflation
 Quantity Theory
►Having
too much money in the
economy causes inflation
►Money supply should be tightly
regulated by the government
Inflation
►Causes
of Inflation
 Demand-Pull Theory
►Demand
for goods exceeds
existing supplies
►Businesses, thus, raise their prices
Inflation
►Causes
of Inflation
 Cost-Push Theory
►As
costs go up for producers, they
increase their prices
►Ex. – Employees get a raise, so to
cover the additional cost, JC Penny
raises its prices by 5%
►This trend is called a wage-price
spiral
Poverty
►Poverty
can mean different things to
different people
►Defined by the Census Bureau as “total
income less than the amount needed
to satisfy the family’s minimum needs”
►Census Bureau sets the poverty
threshold – income level below which
family is considered impoverished
Poverty
►Sample
Poverty Thresholds (U.S.)
 Single parent, one child =
$13,020
 Two parents, two children =
$19,257
Poverty
►Poverty
Rate - % of a group that
falls below the poverty threshold
 U.S. poverty rate is 12.7% (2004)
►Poverty
Rates help show factors
that may contribute to poverty
Poverty
►Poverty
Rates of Various Population
Groups (U.S.)
 White = 8.6%
 Black = 24.7%
 Hispanic = 21.9%
 2 Parent Households = 5.5%
 Single Parent (Female) Household =
31.6%
Poverty
►Causes
of Poverty
 Lack of Education
►Median income for high school
dropout = $18,144
►Median income for high school
grad or GED = $25,360
►Median income for 4 year college
grad = $42,404
Poverty
►Causes
of Poverty
 Location
►Higher income jobs are located
in suburban areas
►Large numbers of minorities
concentrated in inner cities,
with no means to commute
Poverty
►Causes
of Poverty
 Racial/Gender Discrimination
►Women earn $0.75 for every dollar
men make
►Blacks and Hispanics make $0.60
for every dollar whites make
►Result of education, location
disparities, but also discrimination
Poverty
►Causes
of Poverty
 Economic Shifts
►Laborers frequently lose their jobs
as new technology replaces them
►Without education and training,
they can become left out of the
new workforce
Poverty
►Causes
of Poverty
 Shifts in Family Structure
►Divorce rate continues to rise,
and single parent families are
much more likely to be
impoverished
Income Distribution
►Income
Distribution – how the
nation’s total income is distributed
among the population
 Shows gap between rich and
poor
Income Distribution
►Calculating
Income Distribution
 Divide the nation into 5 parts
based on income (ex. Highest 5th,
next highest 5th, etc.)
 Total the incomes of each of the
5 parts
 Compute % of income each
group has
Income Distribution
►Graphing
Income Distribution
 The Lorenz Curve shows how
“unequal” the distribution is
Income Distribution
►U.S.
Income Distribution
 Lowest 5th – 3.6%
 Second 5th – 8.9%
 Third 5th – 15%
 Fourth 5th – 23.2%
 Highest 5th – 49.4%
Why the Income Gap?
►Differences
in Skill and Effort –
Workers with higher skill levels
work more hours at more
demanding jobs
►Inheritances – many Americans
inherit large sums of money and
invest it, producing more income
How to Fix Poverty
►No
“for sure” solution, but many
suggestions
 Enterprise Zones – government
lifts all taxes in run-down areas,
thus encouraging new businesses
How to Fix Poverty
►No
“for sure” solution, but many
suggestions
 Employment Assistance –
government creates job-training
programs for workers who lack
skills and institutes a minimum
wage
How to Fix Poverty
►No
“for sure” solution, but many
suggestions
 Welfare Reform
►Welfare
– government gives poor
people money to cover basic
needs, such as food, health care,
etc.
How to Fix Poverty
►No
“for sure” solution, but many
suggestions
 Welfare Reform
►Reform
is labeled “workfare” – a
program to give temporary
assistance until the recipient can
find a job