Transcript Facing Economic Challenges

Facing Economic Challenges
Economics Chapter 12 Notes
Economic Challenges - Unemployment
▫ Unemployment has a variety of causes.
 Some level of unemployment is expected,
even when an economy is healthy.
▫ As the nation goes through business cycles, it
faces the problems of unemployment and
inflation.
 Persistent unemployment can lead to
poverty.
 During periods of inflation, wages buy less.
Measuring Unemployment
• The Unemployment Rate
▫ Civilian labor force—people over 16 who are
working, looking for work
▫ Bureau of Labor Statistics determines
unemployment rate
 divides number of unemployed workers by total in
civilian labor force
 does not count discouraged who have stopped
looking or underemployed
▫ Underemployed—work part-time, want fulltime or work below skill level
Measuring Unemployment
• Full Employment
▫ Full employment—no unemployment caused by
decreased economic activity
▫ Always some degree of unemployment:
 people relocate; look for better job; can’t find
appropriate job
▫ Unemployment rate of 4 to 6 percent considered
full employment in U.S.
 other rates in countries with different labor markets,
economic policies
Types of Unemployment
• Type 1: Frictional Unemployment
▫ Frictional unemployment not a threat to economic
stability.
▫ Includes:
 Childrearing parents returning to work
 new college graduates looking for first job
 experienced workers who want to switch jobs
▫ Reflects workers’ freedom to find best job for them
at highest wage
Types of Unemployment
• Type 2: Seasonal Unemployment
▫ Demand for some jobs changes dramatically
from season to season
 construction work falls off in winter
 tourism peaks at certain times of year; varies
by region
 migrant farm work drops off in winter;
migrant families suffer
Types of Unemployment
• Type 3: Structural Unemployment
▫ As businesses become more efficient, require
fewer workers
 new technologies replace workers or require them to
retrain
 new industries requiring specialized education do
not employ unskilled
 change in consumer demand can shift type of
workers needed
 offshore outsourcing sometimes leaves people out of
work
Types of Unemployment
• Type 4: Cyclical Unemployment
▫ Employers lay off workers during low points in
business cycle
▫ During recession, hard to find new jobs since
demand for labor drops
▫ Unemployment period varies by type; average
relatively short
 over one third of unemployed find work in
five weeks or less
Section 2:
Poverty and Income Distribution
What Is Poverty?
• The Poverty Threshold
▫ People considered in poverty if income falls below
poverty threshold
▫ Also called the poverty line
▫ Calculated based on costs of nutritious food, other
necessities
 differs by size of household
 adjusted annually
What Is Poverty?
• The Poverty Rate
▫ Poverty rate—percent of people in households
below poverty threshold
 based on population as a whole
▫ Poverty does not hit all sectors of society
equally. Most at risk:
 Children, minorities; inner-city, rural, and
single–mother families
The Problem of Poverty
• Factors Affecting Poverty
▫ Education—the higher the level of education, the
higher the income
▫ Discrimination against minorities, women
 sometimes face wage discrimination, occupational
segregation
▫ Demographic trends—single-parent families
have more economic problems
▫ Change from manufacturing to service jobs has
resulted in lower wages for low-skilled workers
Income Distribution
• Income distribution—how income is divided
among people in a nation
• Income inequality—unequal distribution of
income; some always exists
Antipoverty Programs
• Programs for Low-Income Households
▫ Food stamp program gives card, government
deposits funds in account
 card can be used only to buy food at grocery stores
▫ Medicaid offers health care; funded by federal
and state governments
▫ Earned-income tax credit—refunds taxes
deducted from paychecks
 money usually spent in own communities, helping
boost their economies
General Antipoverty Programs
▫ Social Security program pays benefits to
retirees, survivors, disabled
▫ Medicare is government health insurance for
seniors
▫ Unemployment insurance helps laid-off
workers while looking for job
 Social Security, Medicare funded by payroll taxes;
reduced poverty
 Unemployment insurance paid mostly by taxes on
employer
Antipoverty Programs
• Other Programs
▫ Some programs supplement the largest programs,
including:
 Community Services Block Grants, job training,
Empowerment Zones
▫ In 1996, federal welfare programs changed to
welfare-to-work
 workfare requires welfare recipients to do some
work
 Temporary Assistance for Needy Families has fiveyear limit
Inflation – a rise in the general level
of prices of goods and services in an
economy over a period of time
Inflation
• Types of Inflation –
Demand-pull Inflation- general rise in
prices as a result of demand excesses supply
in economic system.
Cost-push Inflation- inflation as a result
of a rise in prices of costs of production.
RELATED CONCEPTS OF INFLATION
▫ Moderate, Creeping & Galloping Inflation
 All refer to the speed of inflation
▫ Hyperinflation- over 50 percent per month
▫ Deflation - decrease in general price level; happens
rarely
HOW DO WE MEASURE
INFLATION?
• CPI / PPI
• Consumer price index- measured price
changes for selected consumer goods.
• Producer price index-- measured price
changes received by domestic producers.
• GDP DEFLATOR
▫ is a measure of the price of all the goods and services
included in gross domestic product (GDP)
What Is the Impact of Inflation?
• Effect 1: Decreasing Value of the Dollar
▫ Rising consumer price index represents declining
value of the dollar
▫ People on a fixed income are especially vulnerable
 each dollar they have buys less every year
▫ Inflation helps people who borrow at a fixed rate
of interest
What Is the Impact of Inflation?
• Effect 2: Increasing Interest Rates
▫ Lenders raise interest rates to ensure profit on
loans
▫ Businesses avoid borrowing to expand or make
capital improvements
▫ Consumers less likely to finance high-priced items
▫ Monthly credit card payments go up as rates rise
What Is the Impact of Inflation?
• Effect 3: Decreasing Real Returns on
Savings
▫ Interest on savings tends to increase during
inflationary times
▫ Inflation worries people about drop in standard of
living, retirement