Download Types of Unemployment

MACRO
Domain Focus
SSEMA1
The student will illustrate the means by
which economic activity is measured.
Domain Focus
SSEMA2
The student will explain the role and
functions of the Federal Reserve
System.
Domain Focus
SSEMA3
The student will explain how the
government uses fiscal policy to
promote price stability, full
employment, and economic growth.
Where to Begin?
Unemployment
GDP
Inflation
Recession
Depression
The Federal Reserve
Government Spending
Taxation
Federal Debt
Federal Deficit
Georgia Council on Economic Education
www.gcee.org
SSEMA1 The student will illustrate the means by which economic
activity is measured.
a. Explain that overall levels of income, employment, and prices are determined by
the spending and production decisions of households, businesses, government, and
net exports.
b. Define Gross Domestic Product (GDP), economic growth, unemployment,
Consumer Price Index (CPI), inflation, stagflation, and aggregate supply and
aggregate demand.
c. Explain how economic growth, inflation, and unemployment are calculated.
d. Identify structural, cyclical, and frictional unemployment.
e. Define the stages of the business cycle, as well as recession and depression.
f. Describe the difference between the national debt and government deficits.
How is economic activity
measured?
• Gross Domestic Product (the main measure)
– Sometimes other measures are useful
– GDP is used to derive many of them.
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Gross National Product
Net National Product
National Income
Personal Income
Disposable Personal Income
Gross Domestic Product
• Gross= total
• Domestic= produced anywhere in the 50
states, by anyone
• Product= final goods and services
What does GDP measure?
Total amount of final goods and
services produced in a country
in one year.
(Measure of Output)
What is counted in GDP?
• FINAL goods
and services
• Goods/Services produced
here, even if by a foreign co.
What is NOT counted?
• Things produced outside the
country.
• Illegal stuff
• Purely financial transactions
– Pay a broker – broker part counts
– Stock itself doesn’t count
…and INTERMEDIATE GOODS
Gross Domestic Product
• Dollar value of all final goods and services
produced within a country’s borders in a year.
– Dollar value = the total of the selling prices
– Final goods and services = products in the form sold
to consumers, not in any intermediate form
– Within the country’s borders = made in the USA even
if made by a foreign-owned company
– In a year = in one calendar year
• Does not include things made by American companies
outside our borders.
Are there any cool formulas you
can give us relating to this
interesting concept?
GDP=C+I+G+(X-M)
• C= consumption spending
(think consumers)
72%
• I= investment spending
(think businesses investing in themselves)
15%
• G= government spending
17%
• (X-M)= difference between exports and
imports
-4%
Expenditure Approach
GDP=C+I+G+(X-M)
How is GDP calculated?
• 1) Expenditure approach
– Estimate what is spent in a year on 4
categories of final goods and services
(consumer, business, government and net
imports or exports) then add all 4 together to
get total expenditures for one year.
– Total is GDP
– Practical, but not as accurate as the income
approach.
How is GDP measured?
• 2) Income approach
– Add up all the incomes in the economy.
• Ex: a firm sells a product, the selling price in income
for the firm, the owners, the employees…
• ECONOMISTS USE BOTH APPROACHES
AND COMPARE THEM.
• THEY ADJUST FOR MISTAKES.
• COMPARISON GIVES BETTER RESULTS.
Problems associated with GDP
• Slow to calculate
• Does not count everything
(it’s an estimate)
• Inflation can distort the figure
Real vs. Nominal
Real and Nominal GDP
• Nominal GDP is measured in current
year’s prices.
• Real GDP is measured in constant or
unchanging prices (more accurate).
– Inflation distorts
• 10 oranges @ $1 = $10
• 10 oranges @ 3 = $30
• Is our economy better?
– NO – inflated!!
Per Capita GDP
• GDP divided by country’s population
• How much is being produced per person
(potentially)?
• Quality of life?
– How many doctors in Yemen? Afghanistan?
– More in Bibb County than some countries.
– What does that mean?
Per Capita GDP
GDP divided by a country’s population
Circular Flow Model
Factors Influencing GDP
• Supply and demand affect GDP
– Economists calculate price levels , the average of all
prices, to determine aggregate supply (the total
amount of goods and services in the economy
available at all possible price levels).
– Aggregate demand (the amount of goods and
services in the economy that will be purchased at all
possible price levels)
– Intersection of aggregate supply and demand indicate
equilibrium price level of the economy.
GDP practice
(all about GDP)
Aggregate Demand and Aggregate
Supply
• What is different about these graphs?
• What do they look like?
• What causes them to shift?
Aggregate Demand
• AD = total amount of goods and services
that all of the people in the economy are
wiling to buy.
– Slopes downward
– When prices are low, people will buy more,
increasing the nation’s real GDP.
– When prices are high, people will buy less,
decreasing the nation’s real GDP.
Aggregate Demand
Aggregate Supply
• AS = total amount of goods and services
that all producers in an economy are
willing and able to make.
– Curves are more complicated than those for
individual markets.
• Individual markets can adjust quickly to changes in demand
by lowering prices.
• Takes longer for the average price of ALL goods and
services produced in an economy to change.
• ECONOMISTS USE TWO CURVES TO SHOW AS
CHANGES: short-run and long-run.
SHORT-RUN AGGREGATE
SUPPLY CURVE
• Slopes upward (like the supply curves we
did in micro)
– Producers make slightly more goods as prices
increase and slightly less as prices decrease.
(slopes gently upward)
LONG-RUN AGGREGATE
SUPPLY CURVE
• Supply is pretty constant because in the
long-run, the total amount that any
economy can produce (the real GDP)
remains fairly constant, because real GDP
is limited by its resources.
• Line is a straight vertical line.
Aggregate Supply
Demonstration Lesson
Aggregate Demand and Aggregate
Supply Lesson
AD/AS
Business Cycle
GDP
What is a business cycle?
• A period of economic expansion followed by a
period of contraction.
• Major changes in GDP above or below normal
levels.
• Four phases:
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–
–
–
Expansion
Peak
Contraction
trough
Phases of the Business Cycle
• Peak = height of expansion, GDP stops rising.
• Contraction = economic decline, falling real GDP, unemployment,
fall in business activity.
• Trough – lowest point in contraction, real GDP stops falling.
• Expansion – growth, rise in real GDP, increased employment and
income.
Leading Economic Indicators (point to
what will happen in the economy)
• Help economists predict new phase.
– Stock market – downward slope before
recession.
– Interest rates – low rates signal investment
and expansion. High rates signal a slow
down in buying, contraction.
– Manufacturers’ new orders of capital goods –
show expansion or contraction.
– New home sales
Other Leading Indicators
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Average weekly hours for workers in manufacturing jobs
Weekly claims for unemployment insurance
New orders for consumer goods
Speed with which companies make deliveries (the busier
the company, the longer it takes to fill orders)
Number of contracts and orders for plants and
equipment.
Number of building permits
Changes in money supply in circulation
Changes in consumer expectations
Indicators
• Coincident indicators – change at same time as
business cycle (rate of production, sales,
number of nonagricultural workers employed,
etc.)
• Lagging indicators – lag behind changes – give
clues as to what the cycle is doing (avg. length
of unemployment, size of inventories, labor
cost/unit, changes in price index, etc.)
• US DEPT. OF COMMERCE compiles statistics
for 78 economic indicators covering all aspects
of the economy.
Other terms associated with
business cycles
• Economic growth – period of steady, long term
increase in real GDP.
• Recession – prolonged economic contraction.
Real GDP falls for two consecutive quarters (6
months)
• Depression – recession that is especially long
and severe.
• Stagflation – decline in GDP combined with a
rise in price level.
Business Cycles are affected by
four main factors
• Business investment – when the economy is expanding, firms are
investing in new plants and equipment, or in old ones to improve
production. GDP is increasing.
• Interest rates – when they are low, businesses expand and invest –
GDP increases. When they are high, businesses slow down and
GDP falls.
• Consumer expectations – when the economy looks good, we spend
more. When it looks bad, we spend less.
• External shocks that are unexpected – disruption in oil supply, wars,
natural disasters, etc. These things influence our output. Can be a
good shock like a new discovery of oil – boost the economy.
Activity
• Students should draw the business cycle
and label each part, including a brief
description of each phase in own words.
Types of Unemployment
1. Structural
2. Cyclical
3. Frictional
UNEMPLOYMENT
• Types of unemployment
– Frictional – when people change jobs or get laid off (between
jobs, left one to take another)
– Structural – when the skills of workers do not match the jobs that
are available (big change in economy, change in the business,
like a merger, or a closure.)
– Seasonal – when a period of steady work is followed by a period
of unemployment each year. Takes place every year,
regardless of the economy.
– Cyclical – when unemployment rises during economic
downturns and falls when the economy improves (recession –
people put off buying cars, etc. so people lose jobs). Can last 3-5
years.
Structural Unemployment
Cyclical Unemployment
Frictional Unemployment
What is “unemployed”?
• People available for work who made a
specific effort to find work in the past
month and who during the most recent
survey week, worked less than one hour
for pay or profit.
• Also people who worked in a family
business without pay for less than 15
hours a week.
How is unemployment
measured?
• It’s an important indicator of the health of the
economy.
• Bureau of Labor statistics polls sample of
population to determine how many are
employed and unemployed.
• Unemployment rate is the percentage of nation’s
labor force that is unemployed.
• It is only a national average – it’s doesn’t reflect
regional trends.
Full Employment
• The level of employment reached when
there is no cyclical unemployment (no one
out of work because of downturn in the
economy – everyone who wants a job has
one)
• 4-6% unemployment is “normal”.
Limitations
• Figures don’t count those who have
become frustrated and stopped looking for
work (have to have looked for work in the
past 4 weeks)
• If you have a part time job you are
considered employed even if you would
rather have a full time job – took this one
because it’s all you could find.
Which type of unemployment?
• You just graduated from college and are
taking some time looking for work after
finishing school.
• Which type of unemployment?
Which type of unemployment?
• You just graduated from college and are
taking some time looking for work after
finishing school.
• Which type of unemployment?
– FRICTIONAL
• Change jobs or get laid off (not because of the
economy)
Which type of unemployment?
• You work for a landscaping company and
get laid off during the winter.
• What type of unemployment?
Which type of unemployment?
• You work for a landscaping company and
get laid off during the winter.
• What type of unemployment?
• SEASONAL
– Steady work followed by period of
unemployment each year
What type of unemployment?
• My aunt left her job to care for her sick
mother and is now looking for work.
• What type of unemployment?
What type of unemployment?
• My aunt left her job to care for her sick
mother and is now looking for work.
• What type of unemployment?
• FRICTIONAL
– Change jobs or get laid off (not because of
the economy)
What type of unemployment?
• A new, robotic teacher is developed and
humans are no longer needed to teach
classes. I lose my job.
• What type of unemployment?
What type of unemployment?
• A new, robotic teacher is developed and
humans are no longer needed to teach
classes. I lose my job.
• What type of unemployment?
• STRUCTURAL
– New technology developed that makes me
obsolete. My skills don’t match the job that is
now available.
What type of unemployment?
• I am a ski instructor. The spring thaw
comes, the snow melts, the ski lifts shut
down. I am out of work until the next
winter snows fall.
• What type of unemployment?
What type of unemployment?
• I am a ski instructor. The spring thaw
comes, the snow melts, the ski lifts shut
down. I am out of work until the next
winter snows fall.
• What type of unemployment?
• SEASONAL
– Steady work followed by period of
unemployment.
Activity – choose one.
•
Draw a picture to represent each type of unemployment.
•
OR
•
Write two journal entries or letters to the editor describing two imaginary experiences as an
unemployed person. Describe the reasons for your unemployment (using details of one of the
types of unemployment. You should use two types of unemployment.)
•
OR
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Skit acting out two of the types of unemployment.
•
OR
•
Conduct an imaginary interview with people who have lost their jobs – each should be
unemployed for one of the four different reasons. Use two reasons in your interviews. Write out
questions and answers. You could also choose to act this out.
Am I Unemployed?
Unemployment
1. Structural
2. Cyclical
3. Frictional
INFLATION
• What is inflation?
– Rise in general price level – generally reported in
terms of annual rate of change.
• How is it measured?
– Look at price levels (relative magnitude of prices at
one point in time, usually used for comparison)
– To measure price level, a price index is constructed
(such as Consumer Price Index, Producer Price
Index, or implicit GDP price deflator).
What is a price index ?
• Price index is 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” of
a typical consumer.
– Computed each month by the Bureau of Labor
Statistics.
CONSUMER PRICE INDEX
• Consumer Price Index – price index determined by
measuring the price of a standard group of goods meant
to represent the “market basket” of a typical consumer.
– Computed each month by the Bureau of Labor Statistics.
• Reports changes for about 90,000 items in 364
categories.
• Sampled from 85 geographically distributed areas
around the country.
• Some items sampled in all areas, some in only a few.
• There are separate indices for 28 selected areas around
the country.
• Price index =
cost today
X 100
cost in base year
Price index is current value of a “basket” of goods and service divided
by cost of same basket in base year and then multiplied by 100.
- Mixed basket of goods used because prices can go up or down for
reasons that have nothing to do with inflation.
- Having a large group of representative items helps eliminate the
effect of some product’s price dropping while others tend to be on
the rise.
- Base year can be any year.
- Price index for the base year will always be 100.
- Index values over 100 indicate inflation.
- Index values under 100 indicate deflation.
How is the inflation rate
computed?
• Take the CPI for Year A
• Subtract the CPI for Year B
• Multiply by 100
PRODUCER PRICE INDEX
• Measures price changes received by domestic
producers for output.
• Uses sample of about 3,000 commodities.
• Base year of 1982.
• Compiled for all commodities – but also broken
down into subcategories – farm products, fuels,
chemicals, rubber, pulp and paper, processed
foods.
IMPLICIT GDP DEFLATOR
• Measures price change in GDP.
• Has a base year of 1987 and can be used
to remove the effects of inflation from
GDP.
• Compiled quarterly, so not as useful for
measuring month to month changes in
inflation.
Why is a price index used?
• Some measure change in price of a single
item.
• Some measure price changes of imported
goods.
• Others measure price changes for
agricultural goods.
Degrees of Inflation
• Creeping inflation
– Range of 1-3%
• Galloping inflation
– Can go as high as 100-300%
• Hyperinflation
– Out of control
– In range of 500%
– Doesn’t happen often – last stage before monetary
collapse. (WW II – Hungary and Germany)
Causes of Inflation
• Quantity theory – too much money in the
economy causes inflation.
• Demand-pull theory – demand for goods
and services exceeds supply – scarcity
drives up prices.
• Cost-push theory – producers raise prices
to meet increased costs.
Other causes:
• Government deficit – inflation blamed on deficit –
destabilizes output and employment more than
price levels, especially true if interest rates rise
and borrowers are crowded out.
• Wage-price spiral – self-perpetuating spiral –
higher prices force workers to ask for higher
wages. Producers try to recover this by raising
prices, which forces workers to ask for higher
wages….
Consequences of inflation
• Dollar buys less – purchasing power falls as prices rise.
• Spending habits change – disrupts the economy.
• Speculation increases – some people try to take
advantage of higher price levels – people who usually
play it safe start buying things that usually increase in
price (condos, diamonds, art). Diverts spending from
other channels and may cause structural unemployment.
• Distribution of income is altered. Lenders are usually
hurt more than borrowers as loans mad earlier are
repaid with dollars that have less purchasing power.
Lenders can’t do as much with the repaid money.
Inflation, in the long run, favors debtors more than
creditors.
Teaching Tools for MACROECONOMICS
from John Stossel
Clip 2- Nominal Values vs.
Real Values
SSEMA1b
Inflation
Calculator
www.bls.gov
Commanding Heights
Georgia Council on Economic Education
www.gcee.org
Commanding Heights
• On-line video
• Bolivia at the Brink
– Watch for inflation statistics
– What did you hear that surprised you?
Inflation
• Imagine that the price of lunch increased
1% every 10 minutes.
• By 4th lunch you don’t have enough money
to buy a lunch! (maybe sooner!!!)
Questions for You
• What is the national debt?
• What caused the national debt?
• Where does the government get the
money when it wants to spend more
than it takes in?
• What is a budget deficit?
• What is a budget surplus?
Debt v. Deficit
Demonstration Lesson
Should we worry about the
national debt?
1.
2.
3.
4.
Will the national debt cause the US to go bankrupt?
Are the interest payments on the debt important?
What about paying off the debt by increasing taxes?
Does running deficits today, and adding to the national
debt, put a burden on future generations?
Georgia Council on Economic Education
www.gcee.org
www.usdebtclock.org
Clip 12- Is Govt. Too Big?
SSEMA3b
Fiscal Policy
Actions taken by the Federal
Government to influence the
economy (business cycles).
How do they do it?
Taxation (revenue)
Spending (expenditures)
-transfer payments-
How/When/Why
If the economy needs a “boost” the Federal
Government might:
_______________ taxes.
_______________ spending.
How/When/Why
If the economy needs to be “cooled
off” the Federal Government might:
_______________ taxes.
_______________ spending.
Demonstration Lesson
How Can Changes in the Federal
Government’s Budget Stabilize the
economy?
Monetary Policy
The actions the Federal Reserve
(Central Bank) takes to
influence the level of GDP and
the rate of inflation in the
economy.
Monetary Policy DVD
How Do They Do It?
Tools of the Fed:
1. Open Market Operations
2. Discount Rate (Fed to banks)
3. Federal Funds Rate (bank to bank)
4. Reserve Requirements
How/When/Why
If the economy needs a “boost” the
Federal Reserve might:
_______________ bonds.
_______________ interest rates.
_______________ reserve requirements.
How/When/Why
If the economy needs to be “cooled off”
the Federal Reserve might:
_______________ bonds.
_______________ interest rates.
_______________ reserve requirements.