Transcript Ch._11 - Woodlands High School

Ch. 11 – Economic Challenges
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Unemployment The US Census Bureau conducts monthly surveys
and identifies unemployed people
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Individuals (age 16 +) are considered employed if:
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1) Worked for pay one or more hours
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2) Worked without pay in a family business 15 or
more hours
3) have jobs but did not work as a result of illness,
weather, vacations or labor disputes
Ch. 11, Sec.1 – Unemployment (cont)
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Impacts of unemployment:
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1) Loss of production
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2) Loss of sales
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3) Gov't needs to decide, if and how, to support
unemployed
Unemployment rate The percentage of people in the civilian labor force
who are unemployed. The most closely watched and
highly publicized labor force statistic
What is our typical rate?
Unemployment (cont)
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Unemployment rate does NOT include:
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1) Marginally attached workers -
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People who once held productive jobs but have
given up looking for work (2000=1.1M)
2) Discouraged workers Subset of above, people who want a job but have
given up looking for job-related reasons
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3) Underemployed workers -
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People who are in jobs beneath their skill level
Unemployment (cont)
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Full employment =
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4-5% unemployment
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Types of unemployment:
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1) Frictional -
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People who have decided to leave one job to look
for another
2) Structural -
Caused by changes in technology or the way the
economy is structured
Unemployment (cont)
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3) Seasonal Unemployment due to holidays, school year, or
changing production schedules
4) Cyclical Unemployment resulting from recessions or
economic downturns
Lowest and highest unemployment rates in US
history?
1925-28 ---> 3.1%
Ch. 11, Sec. 2 - Inflation
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Aggregate demand Total amount of spending by individuals and
businesses in an economy
Aggregate supply Total amount of goods and services produced in an
economy
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If aggregate demand > aggregate supply then...
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Price levels go up
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Purchasing power goes down
Inflation (cont)
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Inflation An increase in the average price level of all products
in an economy
Deflation Aggregate demand decreases more rapidly than
aggregate supply
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When was deflation the worst in US history?
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Depression: 1929-32 ---> -5.4%
Inflation (cont)
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Causes of inflation -
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1) Demand-pull inflation:
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Aggregate demand increases faster than the
economy's production capacity
As demand increases, prices are pulled higher
Can result from an increase in money supply or
increased use of credit
2) Cost-push inflation:
Increasing production costs push producers to raise
prices
Inflation (cont)
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Measuring inflation Economists use the CPI (Consumer Price Index) –
average change in price over time of a fixed group
of products (market basket)
Food, clothing, shelter, utilities, transportation,
entertainment, health care
The percentage change in the CPI from one time
period to the next provides the inflation rate
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(CPI Year 2 – CPI Year 1)/ CPI Year 1 x 100 =
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Inflation rate
Inflation (cont)
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Typical inflation rate?
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3 to 4%
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Hyperinflation -
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The worst degree of inflation which can be several
hundred %
Large increase in money supply – like post WWI
Germany
Producer Price Index (PPI) Average change in price over time of goods/services
purchased by producers
Inflation (cont)
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Most severe periods of inflation in US?
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1917-20 ---> 16.4%
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1945-48 ---> 8.2%
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1977-80 ---> 9.7%
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Effects of inflation:
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1) Decreased purchasing power
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2) Decreased value of real wages
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3) Increased interest rates
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4) Decreased savings and investment
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5) Increased production costs
Ch. 11, Sec. 3 - Poverty
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Income Gap:
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The amount of income inequality
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Wider in the 1990's than at any other time since WW
II
Poverty threshold (level) The lowest income, as determined by the gov't, that
a family needs to maintain a basic standard of living
(2000 - $17,603 for family of four)
In 1999 – 32.3M people --> Poverty rate 11.8%
Poverty (cont)
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Income gap example:
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1995 -
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The richest 20% of families earned 49% of total
income
The poorest 20% of families earned 5% of total
income
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Lorenz curve -
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Displays income distribution graphically
Poverty (cont)
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Growing income gap in the US
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Causes:
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1) Changes in households
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Single-parent/single person increase
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2) Changes in the labor market
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Corporate downsizing, reduction in unions
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3) Changes in technology
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Drop in demand for low-skilled workers
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4) Growth of global economy