Download Unemployment - La Salle High School

Agenda
Anything new?
Tests Returned
Naked Economics Quiz
Review GDP and the Business Cycle
Problems with GDP
Article
Video
Economic Challenges
Student Companies
HOMEWORK
Review Powerpoint for next class (online)
Read “Current Reading Assignment” (online)
Review…GDP / Business Cycle
Are these examples of U.S. G.D.P.?
1. A Dell computer built in California and purchased by you?
2. An iPod produced in China and purchased in the U.S.?
3. A frappacino produced in Pasadena from coffee beans grown in Brazil?
4. Windows software designed in Washington, created in India and sold in
Brazil?
Review…GDP / Business Cycle
Why is Gross Domestic Product so important?
If GDP then employment
If GDP
then employment
(unemployment
(unemployment
)
)
Okun’s Law
2% GDP gap = 1% MORE Unemployment*
GDP Gap = GDP Potential – GDP Actual
Growth
Growth
* More than the natural rate of unemployment
The data….
GDP…a better look
Real vs. Nominal GDP
Nominal GDP is GDP measured in current prices. It does
not account for price level increases from year to year.
Real GDP is GDP expressed in constant, or unchanging,
dollars.
Real GDP adjusts for inflation
Real GDP is the important one
GDP … the best look
Real GDP per capita
GDP per person in constant dollars
Best measurement of the economic well
being of a country
The Problems with GDP
Nonmarket Activities
GDP does not measure goods and services that
people make or do themselves, such as caring for
children, mowing lawns, or cooking dinner.
Negative Externalities
Unintended economic side effects, such as pollution,
have a monetary value that is often not reflected in
GDP.
The Underground Economy
There is much economic activity which, although
income is generated, never reported to the
government. Examples include black market
transactions and "under the table" wages.
The Problems with GDP (cont.)
Quality of Life
Although GDP is often used as a quality of
life measurement, there are factors not
covered by it. These include leisure time,
pleasant surroundings, and personal safety.
Doesn’t capture improvements in quality
A smartphone is better but cheaper. GDP is
going down (cheaper) but life is better
(higher quality). Same with cars getting
better even if not cheaper
The Problems With GDP
ARTICLE
The Problems With GDP
http://www.youtube.com/watch?v=QUaJMNtW6GA&NR=1
THREE MINUTE BREAK
http://www.online-stopwatch.com/bombcountdown/
Economic Challenges
(new stuff)
Unemployment
Poverty
Inflation
Economic Inequality
They are called
“challenges” because
they never go away.
(Problems are solved,
challenges stay with us)
Economic Challenges
Unemployment
Not enough jobs, people without jobs
Measured as…
Total number of people unemployed
Total Labor Force*
Why is that a challenge?
People without jobs have no economic security or equity
* Note that it is Labor Force, not total population
Four Types of Unemployment
1. Seasonal – Caused by the seasons of
the year (ex. Life guard)
2. Structural – Mismatch of skill (ex. Auto
worker in Detroit)
3. Cyclical – Caused by the business
cycle (ex. Construction worker)
4. Frictional – Caused by time looking for
a job (ex. You after high school)
Economic Challenges
Poverty – People with an income below
a level considered needed to sustain
yourself
Measured as…a dollar amount
Why is that a challenge?
No Economic Equity or Security
Economic Challenges
Inflation – Increase in prices
Measured as a change in prices or the
consumer price index (CPI).
Why is that a challenge?
the value of your money declines
money is no longer a store of value
same amount of money buys less
Video
The Consumer Price Index (CPI) explained
http://www.youtube.com/watch?v=Si37yjZM-SA
What’s in the CPI
http://www.bls.gov/cpi/cpifaq.htm#Question_1
Impact of Inflation
http://www.bls.gov/data/inflation_calc
ulator.htm/
Inflation (cont.)
Three types of inflation
1. Demand pull
2. Cost push
3. Wage / Price spiral
Inflation (cont.)
Demand Pull inflation is caused by
increasing or excessive demand
supply
demand
Inflation (cont.)
Cost Push inflation is caused by decreasing
supply as resource prices increase
supply
demand
Inflation (cont.)
Wage / Price Spiral are caused by increasing demand
caused by increase wages (sort of like demand pull)
supply
demand
Wage / Price Spiral…
An Example
La Salle High School
Economic Inequality
Gap between rich and poor, the haves
and the have nots
Three Common Measurements
Gini index – Most Common
20:20 Ratio
Palma ratio
Inequality Measurements
Gini index
The range of the Gini index is between 0 and 1 (0%
and 100%), where 0 indicates perfect equality and 1
(100%) indicates maximum inequality.
The Gini index is the most frequently used inequality
index.
But it’s a little confusing…
Gini Index
Totally Equal
Less Equal
Inequality Measurements
20:20 Ratio
The 20:20 or 20/20
The ratio of the richest 20% of the
population to the bottom 20%.
Globally, ranges from 8 to 3
20 / 20 Ratio
Global Comparison - 2012
Inequality Measurements (cont.)
Palma ratio
The ratio of the richest 10%’s share of income
divided by the poorest 40%'s share.
Developed by Chilean economist Gabriel Palma who
found that middle class incomes almost always
represent about half of national income
Example: If the richest 10% have 30% of the
income and the poorest 40% have 20%, the ratio is
30/20 or 1.5
Weakness – Assumes everyone in the middle 50% is
equal
Gini Index
Homework
Review Powerpoint for next class (online)
Read “Current Reading Assignment” (online)
handouts