Transcript Unemployment & CPI

Challenge #1 in America
Unemployment



To again monitor the health of our economy,
economists measure the Unemployment Rate.
Each month, they survey certain Americans to
find out their employment status.
The U.S. Government defines “employed” as
people 16 and older meeting one or more of the
following criteria.
1. Working for pay or profit for 1 or more hours
this week.
2. Working without pay in a family business 15
or more hours.
3. Having a job, but being ABSENT due to illness,
weather, vacation, etc.
1.
NOT meeting any of the criteria above
AND
2.
ACTIVELY looking for work during the past 4
weeks.
The most closely watched and highly publicized
labor force statistic is the UNEMPLOYMENT
RATE=the percentage of people in the civilian
labor force who are UNEMPLOYED.
Measuring Unemployment
Unemployment
rate
unemployed
=
labor force
x
100
Structural
 Cyclical
 Frictional
 Seasonal


Unemployment that occurs as a result of
changes in technology, consumer preferences,
or in the way the economy is “STRUCTURED.”

EX: Many TV repairmen had to find new work as
televisions are now built with transistors instead of
tubes.


This unemployment results from
contractions in the economy.
This type of unemployment HARMS the
economy more than any other types of
unemployment.


During the Great Depression, the
unemployment rate reached an all time high of
about 25%.
As recently as 2009 and 2010, the
unemployment rate reached 10.2%.



People who have decided to leave one job and
LOOK for another typically better job.
Also, new entrants and re-entrants into the
LABOR FORCE.
Economists consider frictional unemployment
as a NORMAL part of a healthy and changing
ECONOMY.

This predictable unemployment fluctuates as a
result of HOLIDAYS, school breaks, and
industry PRODUCTION schedules.
Inflation
An increase in the average price level
of all products in an economy



As prices increase, the amount that a dollar
buys decreases.
Inflation reduces the real purchasing power of
the dollar.
Real GDP removes inflation.


Inflation that occurs when demand for goods
and services exceeds existing supplies
Heavy demand make items more valuable,
forcing prices up.



Decrease in purchasing power
Erodes fixed income
Interest Rates


Savings Investments lose value
Loaners lose profit


Occurs when producers raise prices in order to
meet increased costs
Factors of production increase (commonly
labor) which forces prices to rise.


A decrease in the average price level of all
goods and services in an economy.
The most prolonged and most recent
deflationary period in the U.S. occurred during
the Great Depression, when the unemployment
rate was high and wages were low


How do they measure prices of all goods?
How do they know that prices are going up or
down?
A price index is a
number that tells us how
much prices have
changed (%) since a base
year
If the 1998 price index is 128, and the
base year is 1992, then prices have
increased 28% between 1992 and 1998
1998 Index = 128
1992 Index = 100
Price increase= 28
General price rises are called
INFLATION


Economists use the Consumer Price Index or
the CPI to measure the average change over
time in the price of a fixed group of products.
To measure the CPI, the Bureau of Labor
Statistics first chooses a base year against
which to measure price changes.

Second, they select a representative sample of
commonly purchased consumer items, called
the market basket. They then set that base year
to 100, so that other years can be compared to it
easily.





To calculate the CPI, take the price of this
year’s cost of the market basket.
Divide it by the cost of the basket in the base
year.
Multiply the result by 100.
This year’s cost / base year’s cost x 100
For ex. Use the formula to determine the CPI if
the year’s cost is $7000 and the base year’s cost
was $4000.




This year’s cost= $7000
Divided by base year’s cost($4000) = 1.75
1.75 x 100 = 175
See the Inflation Rates for 1970-2004 on page
341.
Used to compare different
national economies on a per
person basis.
GDP
Population


The poverty rate: the percentage of
individuals or families in the total
population that are living below the
poverty threshold
Poverty threshold: the lowest income as
determined by the government that a
family or household of a certain size needs
to maintain a basic standard of living.


In 2007, the poverty threshold for a family of
four was…….
$21,027