Download Chapter 13 Section 1 - Leuzinger High School

Chapter 13 Section 1 Unemployment
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Frictional Unemployment-Occurs b/c of the time
required to match qualified job seekers w/ available
openings.
Structural unemployment-Occurs b/c job seekers do
not have the skills demanded.
Cyclical unemployment-Occurs b/c of the jobs lost
during the recession phase of the business cycle.
Seasonal unemployment-Occurs b/c of seasonal
changes in labor demand during the year.
Full employment-Occurs when there is no cyclical
unemployment; relatively low unemployment.
continued
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Problems w/ official Unemployment Estimates.
Discouraged workers, in effect, dropped out of the
labor force, so they are not counted as unemployed.
B/c official unemployment rate ignores discouraged
workers, it may underestimate unemployment in the
economy.
Underemployment-Workers are overqualified for their
jobs or work fewer hours than they would prefer.
PhD of English would work for a bookstore.
Underemployed.
The Cost and Measure of
Unemployment
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The lost output together w/ the economic and
psychological damage to unemployed workers and their
families represents the true cost of unemployment.
Unemployment Rate-Measurement of unemployment
begins w/ the U.S. noninstitutional adult population,
which consists of all those 16 years of age, and older,
except people military, in prisons, or in mental in the
hospitals.
Labor force-consists of those in the adult population
who are either working or looking for work.
Those w/ no job who are looking for work are counted
as unemployed.
continued
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Unemployment rate equals the number
unemployed-that is, people w/o jobs who are
looking for work-divided by the number in the
labor force.
Unemployment rate= Number unemployed
Number in the labor force
Labor Force Participation Rate
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Therefore equals the number in the labor force
divided by the adult population.
Changes in Unemployment Rate-1900 indicate
periods of recession and depression.
Great Depression
Unemployment for Various Groups.
Unemployment Benefits
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Two workers in the labor force, becomes unemployed,
another is likely to still have a job that may provide
health insurance and other benefits.
Unemployment benefits- Cash transfers to unemployed
workers who actively seek work and who meet other
qualifications.
Unemployment Benefits and Work Incentivesunemployment benefits reduce the opportunity cost of
remaining unemployed, they also may reduce the
incentive to find work.
Chapter 13 Section 2 Inflation
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Inflation- An increase in the economy’s general
price level.
Inflation reduces the value of money and is
usually measured on an annual basis.
Annual Inflation rate is the percentage increase
in the general price level from on year to the
next.
Types of Inflation
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Hyper inflation-Extremely high inflation, such
as the experience in Brazil.
Disinflation-A reduction in the rate of inflation.
Deflation-A decrease in the general price level.
Two Sources of Inflation
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Demand-pull inflation- Inflation resulting from
a right ward shift of the aggregate demand
curve.
A rightward shift of the aggregate demand
curve pulls up the price level.
Cost-push inflation-inflation resulting from a
leftward shift of the aggregate supply curve.
Consumer Price Index
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CPI measures the cost of the market basket of
consumer goods and services over time.
The price level is measured by an index relative
to the base period of 1982 to 1984.
Impact of Inflation
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Consumer price index has increased by an
average of 3.9 percent per year.
Inflation reduces the value of the dollar and
takes away confidence in the value of the dollar
over the longer term.
Expected Versus Unexpected InflationUnexpected inflation creates more problems for
the economy than does expected inflation.
Continued
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The Transaction Costs of Unexpected Inflation
Inflation and Interest Rates
Interest- is the cost of borrowing and the reward for
savings.
Nominal interest rate-The interest rate expressed in
current dollars as a percentage of the amount loaned,
the interest rate on the loan agreement.
Real interest rate-The interest rate expressed in dollars
of constant purchasing power as a percentage of the
amount loaned; the nominal interest rate minus the
inflation rate
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Real interest =
Nominal interest rate – Inflation rate
Chapter 13 section 3
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The Great Depression and Before
Laissez-faire-The doctrine that the government should
not intervene in a market economy beyond the
minimum required to maintain peace and property
rights.
From the Great Depression to the Early 1970s
Stimulating Aggregate Demand
Demand-Side Economics-Macroeconomics policy that
focuses on shifting the aggregate demand curve as a
way of promoting full employment and price stability.
continued
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Employment Act of 1946, which imposed a clear
responsibility on the federal government to foster
“maximum employment, production, and purchasing
power.”
Required the president to report annually on the state
of the economy and to appoint a Council of Economic
Advisers.
Council of Economic Advisers- is a three-member
panel of economist, w/a professional staff, to provide
the president w/ economic advice.
Keynesian
Economics
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Golden age of Keynesian economics - 1960s,
low unemployment & healthy growth, modest
inflation.
Recession 1970s 74-75 and 79-80. Confidence
demand-side policies was shaken.
The Great Stagflation 1973-1980.
Reduction in Aggregate Supply.
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Stagflation of the 1970s, or a contraction, in the
economy’s aggregate output combined w/
inflation, or a rise, in the economy’s price level.
Stagflation Repeats in 1980.
Since 1980
Supply-Side Economics-Macroeconomics policy
that focus on a rightward shift of the aggregate
supply curve through tax cuts or other changes
that increase production incentives.
Giant Federal Deficits
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Annual deficits accumulated of prior deficits.
Measured relative to GDP, the federal debt
nearly doubled.
Chapter 13 Section 4
Poverty and the Economy
Poverty and Jobs-poverty rate is much higher
among families w/ no workers.
Poverty and Unemployment
Unmarried Motherhood and Poverty
Unplanned Result of Income
Assistance
Why work?
An increase in earnings reduces benefits from cash
assistance, Medicaid, food, stamps, housing assistance,
energy assistance, and other poverty programs.
In some cases total welfare benefits are cut by $1 or more
as earned income increases by $1.
B/c welfare benefits decline w/ earnings, this reduces the
incentive to find work.
The high tax rate on each additional dollar earned
discourages employment and self-sufficiency.
continued
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Long-term Dependency
Cycle of Poverty-Children in welfare families
may end up on welfare themselves when they
grow up.
Welfare Reform-An overhaul of the welfare
system in 1996 that impose a lifetime welfare
limit of five years per recipient and other
conditions.