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Chapter 13 Economic Challenges
1.
2.
3.
Unemployment
Inflation
Poverty
1. Unemployment
• The number of people that are out of work
Types of Unemployment
• Frictional - people take time to look for a job
• Structural - when workers’ skills do not match those needed for
the jobs available
• Seasonal - occurs as a result of the seasons
• Cyclical - rises during good times, falls during bad times
Measuring Employment
• Unemployment rate - percentage of the nation’s labor force that
is unemployed
Calculating the Unemployment Rate
Use the following formula:
Number of people unemployed
divided by number of people in the
civilian labor force multiplied by
100.
For Example, if the number of people
unemployed is 7 million and the number
of people in the civilian labor force is
151.4 million.
7 % 151.4 = .046
.046 x 100 = 4.6
4.6%, good or bad?
Full Employment
• The level of employment reached when there is no cyclical
unemployment
Underemployment
• Working at a job for which one is over-qualified or working part
time when full time is desired
Discouraged Employment
•
10
•
Someone who wants a job but has given up and relies on family and
friends ( I hope they have them) - leads to homeless
Unemployment Rate reached a 40-year Peak in 1982.
9
8
7
6
5
4
Unemployment Rate
3
2
1
0
68
19
72
19
76
19
80
19
84
19
88
19
92
19
96
19
00
20
04
20
2. Inflation
•
General increase in prices across an economy
Effects of Inflation on
Entertainment
1985
1995
2005
Average Price of a
Ticket for a Major
League Baseball game
$10.14
$10.65
$21.17
Average Price for a Top
25 Concert Ticket
$15.31
$25.40
$56.88
Average Price of a
Movie theater ticket
$3.55
$4.35
$6.41
The Effects of Rising Prices
• Inflation -rising prices
• Purchasing power - ability to purchase goods and services
• As prices rise, purchasing power decreases
Price Indexes
•
•
•
•
A measurement that
shows how the average
price of a standard group
of goods changes over
time
Consumer Price Index price index determined by
measuring the price of a
standard group of goods
meant to represent the . .
.
“market basket”collection of goods and
services
inflation rate percentage rate change in
price level over time
Category
Examples
Food and Drink
Cereals, Coffee, chicken,
milk
Housing
Rent, homeowner’s costs,
fuel, oil
Apparel and Upkeep
Men’s shirts, women’s
dresses
Transportation
Airfares, new and used
cars, gas, insurance
Medical Care
Prescription medicines,
eye care
Entertainment
Newspapers, toys,
musical instruments
Education and
Communication
tuition, postage,
telephone, services
Other goods and
services
Haircuts, cosmetics,
bank fees
Inflation Rate
•
•
percentage rate change in price level over time
Types of inflation
– core inflation rate - rate of inflation excluding the effects of foods and the
energy prices
– Hyperinflation -inflation out of control
14
13
12
11
10
9
Inflation
Rate
8
7
6
5
4
3
2
1
0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Causes of Inflation
• Growth of the money supply – quantity theory – inflation states
that too much money in the economy causes inflation
• changes in aggregate demand – (amount of goods and services in
the economy that will be purchases at all possible price levels)
can be affected by inflation
• changes in aggregate supply – inflation occurs when producers
raise prices
Effects of Inflation
• Effects on Purchasing Power –inflation can erode purchasing
power if you have no money
• Effects on Income – sometimes may erode income (not all people
can raise income as inflation rises)
• Effects on interest rates – people receive a given amount of
interest on money in their savings, if inflation rate is high, it
could affect interest rates
3. Poverty
• The income level below which income is insufficient to support a
family or a household
In 2006, the poverty threshold for a single parent under 65 with
One child was #13, 896.
For a family of four, two children, $20,444.
The Poverty Rate
•
•
The percentage of people who live in households with income below the official poverty
threshold
Poverty rates differ among groups
– race and ethnic origin
– type of family
White
– age
– residence
Asian
Black
Hispanic
Native Hawaiian and Other pacific Islander
White
Native American and Alaska Native
Asian
Under 18
Over 65
2 parent
Female only
0
5
10
15
20
25
30
Causes of Poverty
•
•
•
•
•
Shift in Family Structure –single parent families are more likely to live in poverty;
higher divorce rate
Location – cities where minorities live in comparison to rural areas
Racial and Gender Discrimination – white men tend to get paid more than women or
minorities
Growth of Low-Skill Service Jobs – lack of manufacturing jobs and globalization has
led to a decrease of higher paying jobs
Lack of Education –median income of a high school dropout is $25,912
20
18
16
14
12
10
8
6
4
2
0
1986 1990 1994 1998 2002 2006
Poverty Rate
Income Distribution
•
•
The way in which a
nation’s total income
is distributed among
its population
Income inequality – food stamp
program government
program that
helps low-income
recipients to buy
food
– Lorenz Curve the curve that
illustrates income
distribution
Quintile
Percent of income of
quintile
Cumulative: Percent of
income for this and
lower quintiles
Lowest
3.4%
3.4%
Second
8.6%
12.0%
Third
14.5%
26.5%
Fourth
22.9%
49.4%
Highest
50.5%
100.0%
Antipoverty Policies
•
•
•
•
•
The Earned Income Tax Credit
Enterprise Zones - area where businesses can locate free of certain
taxes and restrictions
Employment Assistance –government programs that help people receive
training and minimum wage
Housing Assistance – government also provides poor people affordable
housing
Welfare Reform
– block grants - federal gov’t giving lump sum of money to a
state
– workfare - requires work in exchange for temporary
assistance from the government
Economics Indicators
Unemployment Rate
The percentage of the
nation’s labor force
that is unemployed.
To find the
unemployment rate,
divide the number of
unemployed people by
the total labor force
and multiply by 100.
Inflation Rate
The percentage rate of
change in price level
over time as measured
by the Consumer Price
Index.
To calculate the
inflation rate, subtract
the base year CPI from
the current CPI. Then
divide the result by the
base year CIP and
multiply that result by
100.
Poverty Rate
The percentage of
people who live in
households with income
below the official
poverty threshold.
The government
establishes a poverty
threshold, an income
level below which total
income is insufficient
to support a family or
household.