unemployment/inflation chapter 13. breakdown of total u.s. population by employment status total...
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Unemployment/InflationChapter 13
Breakdown of Total U.S. Population by Employment Status
Total Population
Persons under 16Persons in the armed forcesPersons institutionalized
Non-institutional adult civilian population
Not in labor force Civilian labor force
Employed Unemployed
Unemployment Rate
• Percentage of the civilian labor force that is unemployed
• Civilian Labor Force – 16 years or older either employed or actively seeking employment
• Idaho unemployment rate July 2008 – 4.1% - today 6.8%
• U.S. unemployment rate July 2008 – 5.7%- Today 8.5%
More…..
• Individuals who are actively looking for a job but work less than 1 hour per week for pay or profit
• Does not include people who are underemployed, working part time, or have given up the job search
• Government takes monthly surveys to measure the unemployment rate
Full Employment
• Even in an economy that is working properly, economists expect some unemployment.
• An unemployment rate of 3% is considered full employment.
• However, some people with jobs could be underemployed – they work part-time but want full
One Economic Indicator
• Economists measure how healthy the economy is at any given time by counting the number of people who are unemployed.
Unemployment Insurance
• Way of tracking unemployment in U.S.• Not public assistance – paid for by your
employers – based on type of work done• Two qualifications
– Personal eligibility – able to work– Monetary requirements – worked last 5
quarters
• Automated system• $28,000 per year would make one eligible
for $275/week for 6 months
Types of Unemployment
• Frictional
• Seasonal
• Technological
• Structural
• Cyclical
Frictional Unemployment
• People take time to find a job– Get laid off, take time
to find right job– Graduate from high
school or college– Looking for a new job– Left job to take care of
a parent, coming back
Seasonal Unemployment
• Unemployment that occurs as a result of harvest schedules or vacations
• Industries slow down or shut down due to cold weather – Summer Job –
Boondocks– Winter Jobs - Bogus
Technological Unemployment
• Automation makes some workers skills obsolete
Structural Unemployment
• Worker’s skills do not match the jobs that are available– Need skills to success– Move from farming to
manufacturing– Manufacturing to
service – Takes time to retrain
Cyclical Unemployment
• In economic downturns people are laid off because there is a surplus of inventories and no demand
• Unemployment can cause uncertainly, political instability, and social problems
Inflation
What is Inflation?• An increase in the
price level, or the average level of prices
• The same amount of money buys less
• Inflation reduces people’s purchasing power (ability to buy goods and services)
How Do We Measure Inflation?• Economists use a price index• If the price index increases from year to
year – we are experiencing inflation• CPI (Consumer Price Index) - most
commonly used inflation measure– measuring the price of a standard group of
goods meant to represent the “market basket” of a typical urban customer
– Watching from year to year helps determine the inflation rate (% change in prices over time)
Three Causes of Inflation
• Quantity theory – too much money in the economy chasing too few goods
• Demand Pull – • Demand-side inflation• When demand for goods and services exceeds
supply• Government increase in spending on war goods
causes the price to go up for those goods– Johnson years – Vietnam War and Great Society– Civilian demands outpaced supply pulling prices up
• Cost Push• Supply-side inflation• Inflation occurs when producers raise
prices to meet increased costs for labor and raw materials
• Wage-Price Spiral– Increase in one type of prices can cause other
prices to rise to make up for lost profit - oil– Price-wage spiral – lack of competition results
in businesses increases prices – causes an increase in wage demand
Affects of Inflation
• Reducing purchasing power• People on fixed incomes, such as social
security and investment proceeds, are negatively effected.
• The greater the inflation rate, interest earned on savings loses value – can buy less with the money you have
• If you have a long-term contract – can eat up profits over time.
Deflation
• Opposite of inflation
• A decline in the price level, or average level of prices
• A downward change in the CPI indicates deflation
• PROBLEMS – when prices do not fall at the same time, some firms go out of business or lay off workers
Hyperinflation
• Inflation that exceeds 50% per month
• The value of money decreases
• CAUSES – government needs to pay for government services but does not want to raise taxes, so they print more money
• People immediately convert money to goods and services because they are worth more
Examples of Hyperinflation
• U.S. – 1918 – 20.4% - booming economy after WW I
• Germany – 1922-1923 – 3 trillion % inflation - prices doubled every two days – economic crisis helped rise Hitler to power
• Greece – 1941-44 – prices doubled every 28 hours
• Hungary – after WWII – prices doubled every 15 hours
• Yugoslavia – 1994 – prices doubled every 18 hours
• Zimbabwe – December 2008 – 13.22 million % inflation per month