UnemploymentUnemployment

Chapter 14, Sections 2Chapter 14, Sections 2

Nearly 50% of the U.S. population belongs to the Nearly 50% of the U.S. population belongs to the civilian labor forcecivilian labor force

At any one given time millions are without a job At any one given time millions are without a job (Nov 2009 unemployment rate 10%)(Nov 2009 unemployment rate 10%)

Full employment (Economic Social Goals of the Full employment (Economic Social Goals of the U.S.U.S. Lowest possible unemployment rate, when economy Lowest possible unemployment rate, when economy

is still growing & factors of production are being used is still growing & factors of production are being used as efficiently as possbileas efficiently as possbile

Reached when unemployment rate drops below 4.5 Reached when unemployment rate drops below 4.5 %%

Unemployment RateUnemployment Rate

UnemployedUnemployed – members of the civilian – members of the civilian labor force who made an effort to find work labor force who made an effort to find work in the previous monthin the previous month

Unemployment rateUnemployment rate – –

# of unemployed / # in civilian labor force# of unemployed / # in civilian labor force

2009 Unemployment Rate2009 Unemployment Rate(U.S. Bureau of Labor Statistics)(U.S. Bureau of Labor Statistics)

0

2

4

6

8

10

12

January May September

Unemployment Rate

Limitations of the Limitations of the Unemployment RateUnemployment Rate

Does not count labor force “dropouts”Does not count labor force “dropouts”Not classified as unemployed unless they Not classified as unemployed unless they

have been looking for a jobhave been looking for a job

Does not include part-time workersDoes not include part-time workersJust one hour at a minimum wage job is Just one hour at a minimum wage job is

considered employedconsidered employed

Types of UnemploymentTypes of Unemployment

1.1. Frictional UnemploymentFrictional Unemployment Short-term unemploymentShort-term unemployment Suffer little economic hardshipSuffer little economic hardship

2.2. Structural UnemploymentStructural Unemployment Skills required by employers do not match skills Skills required by employers do not match skills

possessed by workerspossessed by workers Workers either develop new skills or move to Workers either develop new skills or move to

another regionanother region

3.3. Cyclical UnemploymentCyclical Unemployment Directly related to the business cycleDirectly related to the business cycle

Types of UnemploymentTypes of Unemployment(continued)(continued)

4.4. Seasonal UnemploymentSeasonal Unemployment Results from changes in weather or demand for Results from changes in weather or demand for

certain productscertain products Happens yearly regardless of health of economyHappens yearly regardless of health of economy

5.5. Technological UnemploymentTechnological Unemployment Workers with less skills, talent or education are Workers with less skills, talent or education are

replaced by machinesreplaced by machines AutomationAutomation – production with mechanical or other – production with mechanical or other

processes that reduce need for workersprocesses that reduce need for workers

InflationInflation

Chapter 14, Section 3Chapter 14, Section 3

Measuring InflationMeasuring Inflation(pg. 390, Figure 14.5)(pg. 390, Figure 14.5)

To find inflation we must start with finding To find inflation we must start with finding the the price levelprice level – the relative magnitude of – the relative magnitude of prices at one point in timeprices at one point in time

Select a market basket and construct a Select a market basket and construct a price indexprice indexWhat are the three types of price indices What are the three types of price indices

(review from chapter 13)?(review from chapter 13)?

Measuring InflationMeasuring Inflation(continued)(continued)

Inflation is reported in terms of annual Inflation is reported in terms of annual rates of change of the price levelrates of change of the price level

inflation rate = (change in price/beginning price) x 100inflation rate = (change in price/beginning price) x 100

DeflationDeflation – a decrease in the general – a decrease in the general price levelprice levelPost-World War 1 recessionPost-World War 1 recessionThe Great DepressionThe Great Depression

Degrees of InflationDegrees of Inflation

Creeping inflationCreeping inflation – inflation in the range – inflation in the range of 1-3% per yearof 1-3% per year

Galloping inflationGalloping inflation – intense form of – intense form of inflation that can reach 100-300% per yearinflation that can reach 100-300% per year

HyperinflationHyperinflation – inflation that is totally out – inflation that is totally out of control…500% + per yearof control…500% + per year

Causes of InflationCauses of Inflation

1.1. Demand-pull theoryDemand-pull theory – prices are “pulled up” by – prices are “pulled up” by excessive demandexcessive demand

2.2. Demand-pull theory (alternate)Demand-pull theory (alternate) – federal – federal government’s deficit spendinggovernment’s deficit spending

3.3. Rising input costs drive up the cost of products and Rising input costs drive up the cost of products and cause inflationcause inflation

4.4. As wages increase, producers increase prices to try to As wages increase, producers increase prices to try to recoverrecover

5.5. Excessive monetary growthExcessive monetary growth

How would a sharp increase in inflation How would a sharp increase in inflation affect the following people?affect the following people?

(answer in your notes)(answer in your notes)

1.1. A person who has just withdrawn a A person who has just withdrawn a considerable amount from a savings account.considerable amount from a savings account.

2.2. A doctor or staff at a large hospital.A doctor or staff at a large hospital.

3.3. A retired autoworker on a fixed pension.A retired autoworker on a fixed pension.

4.4. A borrower about to repay a loan.A borrower about to repay a loan.

Consequences of InflationConsequences of Inflation(pg. 391, Figure 14.6)(pg. 391, Figure 14.6)

Decreased purchasing power of the dollarDecreased purchasing power of the dollar

People change their spending habitsPeople change their spending habits

People speculate to take advantage of People speculate to take advantage of higher price levelhigher price level

Alters the distribution of incomeAlters the distribution of income

HOMEWORKHOMEWORK

Chapter 14 QuestionsChapter 14 Questions13-2313-23