Economics CPEconomics CP

Chapter 13 Economic

Challenges

Chapter 13 Economic

Challenges

Types of Unemployment

Types of Unemployment

• Frictional Unemployment – people unemployed & looking for a job that better suits them

• Seasonal Unemployment – unemployment as a result of seasonal schedules, vacation, or when industry slows or shuts down for season

• Frictional Unemployment – people unemployed & looking for a job that better suits them

• Seasonal Unemployment – unemployment as a result of seasonal schedules, vacation, or when industry slows or shuts down for season

Types of UnemploymentTypes of Unemployment• Cyclical Unemployment – increases when

economy contracts; decreases when economy expands

• Structural Unemployment – unemployment because worker’s skills do not match available jobs; occurs b/c economy changes

• 5 causes: – New technology– New resources– Changes in consumer demand– Globalization– Lack of education

• Cyclical Unemployment – increases when economy contracts; decreases when economy expands

• Structural Unemployment – unemployment because worker’s skills do not match available jobs; occurs b/c economy changes

• 5 causes: – New technology– New resources– Changes in consumer demand– Globalization– Lack of education

Measuring Unemployment

Measuring Unemployment

• Department of Labor, Bureau of Labor Statistics

• Determine unemployment rate – national, state, county level– Latest Unemployment Data

• Seasonally adjusted

• Department of Labor, Bureau of Labor Statistics

• Determine unemployment rate – national, state, county level– Latest Unemployment Data

• Seasonally adjusted

Full EmploymentFull Employment• Do not want 0% unemployment –

no room for expansion in economy• 4-6% is ideal – currently 9%

• Do not want 0% unemployment – no room for expansion in economy

• 4-6% is ideal – currently 9%

Other employment terminology

Other employment terminology

• Underemployed – working at a job for which they are overqualified or working part-time & want full-time work

• Discouraged worker – gave up looking for a job; not considered in unemployment %

• Underemployed – working at a job for which they are overqualified or working part-time & want full-time work

• Discouraged worker – gave up looking for a job; not considered in unemployment %

Chapter 13 Section 2 Inflation

Chapter 13 Section 2 Inflation

InflationInflation• (don’t write) Fact: Prices have a

tendency to increase over time• Inflation: general increase in prices• Purchasing Power: ability to purchase

goods & services• When an increase in inflation causes a

decrease in purchasing power, it is problematic!

• (don’t write) Fact: Prices have a tendency to increase over time

• Inflation: general increase in prices• Purchasing Power: ability to purchase

goods & services• When an increase in inflation causes a

decrease in purchasing power, it is problematic!

Determining InflationDetermining Inflation

• Need a price index – measurement of how the average price of a group of goods changed over time

• Indices used for – consumers to change spending habits– gov’t to adjust payments– unions to demand wages

• Need a price index – measurement of how the average price of a group of goods changed over time

• Indices used for – consumers to change spending habits– gov’t to adjust payments– unions to demand wages

Major Price Indices (3 of ‘em)

Major Price Indices (3 of ‘em)

1. CPI – Consumer Price Index– 200 items in market basket

(collection of goods/ services)– measured monthly– “urban goods”– base year (1982-1984) assigned 100

1. CPI – Consumer Price Index– 200 items in market basket

(collection of goods/ services)– measured monthly– “urban goods”– base year (1982-1984) assigned 100

Major Price IndicesMajor Price Indices

2. PCE – Personal Consumption Expenditure

– Asks individuals how much spent in month

– Eliminates problem of substitutes

2. PCE – Personal Consumption Expenditure

– Asks individuals how much spent in month

– Eliminates problem of substitutes

Major Price IndicesMajor Price Indices

3. PPI – Producer Price Index– Cost of goods at intermediate states

of production– Precursor to increase of CPI or PCE

3. PPI – Producer Price Index– Cost of goods at intermediate states

of production– Precursor to increase of CPI or PCE

Inflation rateInflation rate• Def: % rate of change in price

level over time• Ideally: 1-3%; 5% =

instability• Often food & energy prices

increase inflation; core inflation rate = inflation rate calculated w/o food & energy

• Hyperinflation = inflation out of control; 100% to 500% per year; economic collapse

• Def: % rate of change in price level over time

• Ideally: 1-3%; 5% = instability

• Often food & energy prices increase inflation; core inflation rate = inflation rate calculated w/o food & energy

• Hyperinflation = inflation out of control; 100% to 500% per year; economic collapse

It’s time for a simulation …

also known as … Why can’t the government just print as much money as possible?

It’s time for a simulation …

also known as … Why can’t the government just print as much money as possible?

Causes of InflationCauses of Inflation

• quantity theory: too much $$$ in the economy; eliminate this by increasing the money supply at the same rate in which the economy is growing

• quantity theory: too much $$$ in the economy; eliminate this by increasing the money supply at the same rate in which the economy is growing

Causes of InflationCauses of Inflation

• demand-pull theory: “too many dollars chase too few goods”– demand for goods & services exceed

increasing supplies

• demand-pull theory: “too many dollars chase too few goods”– demand for goods & services exceed

increasing supplies

Causes of InflationCauses of Inflation

• cost-push theory: inflation occurs when producers increase prices to meet increased costs

– led by wage increase b/c low unemployment cause companies to compete for workers

– wage price spiral: rising wages cause higher prices; higher prices cause higher wages(p. 342)

• cost-push theory: inflation occurs when producers increase prices to meet increased costs

– led by wage increase b/c low unemployment cause companies to compete for workers

– wage price spiral: rising wages cause higher prices; higher prices cause higher wages(p. 342)

Effects of InflationEffects of Inflation

• weakens purchasing power• income: must “keep up” with

inflation; people on fixed income especially impacted

• Interest rate: amount truly gained on savings may depend on rates

• weakens purchasing power• income: must “keep up” with

inflation; people on fixed income especially impacted

• Interest rate: amount truly gained on savings may depend on rates

Inflation in HistoryInflation in History• Inflation has been

low since the 1970s oil embargo

• Because of high unemployment right now, little chance of inflation except in energy costs

• Inflation has been low since the 1970s oil embargo

• Because of high unemployment right now, little chance of inflation except in energy costs

Chapter 13 Section 3 Poverty

Chapter 13 Section 3 Poverty

Defining PovertyDefining Poverty• Poverty

threshold – income level below which income is insufficient to support a family/ household

• Poverty threshold – income level below which income is insufficient to support a family/ household

Persons in familyPoverty guideline

1 $10,830

2 14,570

3 18,310

4 22,050

5 25,790

6 29,530

7 33,270

8 37,010

Defining PovertyDefining Poverty

• Poverty rate: % of people who live in households with income below poverty threshold

• Children are highest age group in poverty

• Poverty rate: % of people who live in households with income below poverty threshold

• Children are highest age group in poverty

Causes of PovertyCauses of Poverty

• Not lack of work:– Head of Household makes $8.00/ hour

and works 40 hours/ week– Weekly income: $320; 52 weeks/

year: $16,640/ week– Check out the poverty guidelines; At

what sized household will he/ she be in poverty?

• Not lack of work:– Head of Household makes $8.00/ hour

and works 40 hours/ week– Weekly income: $320; 52 weeks/

year: $16,640/ week– Check out the poverty guidelines; At

what sized household will he/ she be in poverty?

Causes of PovertyCauses of Poverty

1. LACK OF EDUCATION!!!• Median income of HS dropout:

$18,344• HS grad earns 1/3 more; $24,458• College grad 3 times more: 55,032

1. LACK OF EDUCATION!!!• Median income of HS dropout:

$18,344• HS grad earns 1/3 more; $24,458• College grad 3 times more: 55,032

Causes of PovertyCauses of Poverty

2. Locationinner city v. suburbs v. ruralcost of living NOT considered

2. Locationinner city v. suburbs v. ruralcost of living NOT considered

Causes of PovertyCauses of Poverty

3. Racial/ gender discrimination4. Economic shifts5. Family structures

3. Racial/ gender discrimination4. Economic shifts5. Family structures