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Clickers! 1. Select the best definition of the unemployment rate. • • • • A) labor force/# unemployed B) # unemployed/ labor force C) civilian labor force/# unemployed D) # unemployed/ civilian labor force 2. Who is unemployed in this list? • A) a stay-at-home-mom • B) a ten yr-old kid • C) a guy who, after looking for a job for 6 months, gave up and moved in with his parents • D) a retired person • E) None of the above. 3. Population = 100 Employed = 40 Not employed but looking = 10 What is the unemployment rate? • • • • A) 10% B) 20% C) 30% D) 40% 4. Population = 50 Employed = 30 Unemployed = 10 What is the unemployment rate? • • • • A) 15% B) 25% C) 30% D) 33% 5. Population = 100 Employed = 45 Not employed but looking = 5 What is the unemployment rate? • • • • A) 10% B) 11% C) 20% D) 5% 6. Population = 60 Employed = 20 Not employed but looking = 20 What is the unemployment rate? • • • • A) 100% B) 66% C) 50% D) 33% 7. How are discouraged workers (people who want to work but have given up looking for a job) counted when measuring the unemployment rate? • A) They count as unemployed but not in the labor force. • B) They count as unemployed and are part of the labor force. • C) They are neither in the labor force nor unemployed. 8. Many people have part-time jobs but want full-time work. When measuring the unemployment rate, these people are counted as • • • • A) unemployed & in the labor force. B) unemployed & not in the labor force. C) employed & in the labor force. D) employed but not in the labor force. 9. Population = 100 Working full time = 60 Children = 5 Stay-at-home parents = 5 Prisoners = 10 Not working, but looking for a job = 20 What is the unemployment rate? • • • • A) 20% B) 25% C) 30% D) 35% 10. The country of Bagonia has an unemployment rate of 5%. The country of Krakosia has an unemployment rate of 10%. Which of the following must be true? • A) Krakosia has a higher rate of inflation. • B) Krakosia has twice as many unemployed people as Bagonia. • C) Bagonia has a smaller labor force than Krakosia. • D) None of these is necessarily true. 2 Countries • • • • • Bagonia Employed: 95 Unemployed: 5 Labor Force: 100 U.Rate: 5% • • • • • Krakosia Employed: 9 Unemployed: 1 Labor Force: 10 U.Rate: 10% Assignment • Take a moment to think of a reason why someone might lose their job. • Be specific! Kinds of Unemployment • Frictional: between jobs (it’s personal) • Structural: changes in consumer tastes or industry operations; skills don’t match jobs (jobs not coming back) • Cyclical: changes in business cycle (jobs will come back) • Seasonal: changes in weather/seasons Unemployment Worksheet • Follow all directions on handout. Monetary Policy Game Plan • • • • • Interest Rates Money Supply and Interest Rates Bonds Bonds and Money Supply Monetary Policy (The Whole Picture) – The Fed-Bonds-Money Supply-Interest RatesThe Economy When are we more likely to buy things... when the price is low or when the price is high??? Interest Rates • Are the PRICE of money. • When do we borrow more money… – when interest rates are low or when they’re high??? • LOW, good! Interest Rates • • • • If interest rates are low... and people borrow more money... then more money is spent... and more stuff gets sold and produced. Picture Time • Divide a sheet of notebook paper into six squares. Write “Monetary Policy” at very top. • Number them 1-6 (1,2,3 at top, 4,5,6 at bottom). • In box 4, draw – – – – – a person borrowing money from a bank OR a person leaving the bank with borrowed money OR a person expressing the intent to borrow money from the bank In box 5 • Draw the person who borrowed the money – as they buy something with that borrowed money. – OR – enjoy the thing they just bought with borrowed money. BUT • More money in circulation can eventually result in… • INFLATION. QUIZ Grab Your Clickers! Interest rates are the price of • • • • A) money B) inflation C) unemployment D) real GDP Consumers like • A) low prices • B) high prices Borrowers like • A) low interest rates. • B) high interest rates. Lower interest rates mean • A) more money in circulation. • B) less money in circulation. If rates are kept too low... • A) inflation could result. • B) deflation could result. A Question Bankers and Money The money supply and interest rates • Story Time! – The farmer who had a healthy crop. • Story Time! – The banker with too much money. The money supply and interest rates • When the money supply goes up, interest rates go down. • …and vice versa! QUIZ When the supply of something rises, the price of it usually goes • A) up. • B) down. When the supply of money increases, interest rates • A) rise. • B) fall. Interest rates go up when • A) the money supply goes up. • B) the money supply goes down. Picture Time • In box 2, draw – a banker, looking inside his vault, which is filled with money. – He should look sad/worried/anxious. – Draw a thought-bubble in which he expresses his frustration, & – …his intent to lower his interest rates. In box 3 • Draw a picture to show interest rates falling. Bonds • Bonds are loans.***** • Treasury bonds are loans to… – the Federal Government. • The government issues bonds whenever it spends more money than it collects in taxes. – (Which is pretty much every year.) Bonds • The government will borrow money from anybody, so… – – – – Americans hold bonds. The Federal Reserve holds (a lot of) bonds. Foreigners hold bonds. Private banks hold bonds. After loaning the government $$$ • You are left holding a bond. • If it’s a 10 year bond, you’ll get paid interest each year. • And receive the “purchase amount” back in 10 years. OR... • Maybe you don’t want to wait 10 years. • Something comes up, and you want your cash now! • In that case you could sell that bond to someone else. How the Fed controls the money supply... (drum roll) The Fed buys or sells bonds in the open market • Hence the name (Federal Open Market Committee). • Remember, people can sell their bonds to other people, or to the Fed. • OR buy bonds from other people or the Fed. What can the Fed do to increase the money supply?? Buy or sell bonds?? Draw it in box #1. In box 1 • Draw the Fed buying bonds. – Money leaving the Fed – Bonds going towards the Fed – This could be shown with hands/arrows/etc. The Fed buys or sells bonds in the open market • The Fed can print money, and BUY bonds from the public. • This INCREASES the money supply. • Which makes interest rates go ___ • which makes people/businesses borrow MORE • AND spend MORE (C & I go up) • so AD increases, and Real GDP increases • and recession ends (yay!!) In box 6 • Draw an increase in production – – – – – – everybody’s working unemployment’s low recession’s over things are generally better people are generally happier it’s a happy ending! But, as more money gets printed... • And people start spending those extra dollars… • inflation can result (boo). Think of a dam… • A dam controls the flow of water downriver. • Releasing too much water would cause flooding. • Too little water would cause a drought. The Fed is like a dam... • & the river is the $ supply. • Too much $ causes inflation. • Too little $ causes a recession. Federal Reserve Money Supply Strong-Like-Bull Rule • To get the economy going, Bu.L.L. • (Buy bonds, Lower federal funds rate, Lower discount rate) So, to fight inflation, the Fed should... • Sell bonds. • Which will shrink the money supply, • and make dollars more valuable. Run the Fed Game Google “fed chairman game” • You must be re-appointed 3 times. • At first, Mr. Cook will be the only verifier. • As students finish the challenge, they will be made verifiers. • The first two students to finish the challenge will get candy! Relationship between unemployment, inflation, and Real GDP. Assignment • Compose a skit in which someone is losing their job. • You will act out your skits in front of the class. • The class will identify which type of unemployment your skit represents. • Each group will compose one skit. • You will have about ten minutes to write your short skits.