Download Insert title here

Unemployment and Inflation
The United States Labor Force
Economics defines the labor force as all nonmilitary
people who are employed or unemployed.
Employment
 Must be 16 years or older and meet
at least one of the following
requirements:
 worked a least one hour for pay within
the last week; or
 worked 15 or more hours without pay
in a family business; or
 held jobs but did not work due to
illness, vacations, labor disputes, or
bad weather.
Unemployment
 Must be 16 years or older and meet
the following criteria:
 They do not have a job; and
 They have actively looked for work in
the prior 4 weeks; and
 They are currently available for work.
Determining the Unemployment
Rate
• The Bureau of Labor Statistics polls a sample of the population
to determine how many people are employed and unemployed.
• The civilian non-farm unemployment rate is the percentage of
the nation’s labor force that is unemployed.
• Discouraged workers are people who want a job, but have given
up looking for one. They are not counted in the labor force.
Types of Unemployment
Frictional Unemployment
 Occurs when people change jobs, get laid off from their current jobs, take
some time to find the right job after they finish their schooling, or take
time off from working for a variety of other reasons
Structural Unemployment
 Occurs when workers' skills do not match the jobs that are available.
Technological advances are one cause of structural unemployment
Cyclical Unemployment
 Unemployment that rises during economic downturns and falls when the
economy improves
Other:
Seasonal Unemployment
 Occurs when industries slow or shut down for a season or make seasonal
shifts in their production schedules
Full Employment
• 4 to 6 percent unemployment is normal.
• Full employment is the level of employment reached
when there is no cyclical unemployment.
• What about people who are Underemployed?
•http://www.youtube.com/watch?v=yBSb8e7XCQ
Practice
 Travel to the area in the room based on if you are
employed or unemployed according to your scenario
card
 Share
 Unemployed workers will then travel to the area that
designates which type of unemployment category they
fall under
•http://www.youtube.com/watch?v=Gk8saiBYXI
c
More Practice
 Jim is a 65 year old man who retired after forty years of working




at IBM.
Laura is a 40 year old investment banker who was laid off six
months ago. She decided to switch careers and has spent those
six months figuring out what she wants to do instead of applying
for jobs in the banking field
Tom is a 36 year old accountant who quit his job so he could go to
business school
Moly is a 36 year old moth of three who works part-time as a
tutor
Mike is a 50 year old father of two who has been working parttime while raising kids. He has been looking for a full time job
without success for over a year
What are the causes of food inflation in the agriculture
industry?
Inflation and its Effects
 Inflation is a general increase in prices.
 Price level is the relative cost of goods and services in the
entire economy at a given point in time.
• Purchasing power, the ability to purchase goods and
services, is decreased by rising prices.

When a dollar loses value, it will not buy the same amount of
goods that it did in years past.
Price Indexes
 A price index is a measurement that shows
how the average price of a standard group
of goods changes over time.
 The consumer price index (CPI) is
computed each month by the Bureau of
Labor Statistics.

The CPI is determined by measuring the
price of a standard group of goods meant to
represent the typical “market basket” of an
urban consumer.
 Changes in the CPI from month to month
help economists measure the economy’s
inflation rate.
 The inflation rate is the percentage change
in price level over time.
Current inflation
 http://www.usinflationcalculator.com/inflation/histor
ical-inflation-rates/
Causes of Inflation
The Cost-Push Theory
 when producers raise prices in order to meet increased
costs.
 can lead to a wage-price spiral — the process by which
rising wages cause higher prices, and higher prices cause
higher wages.
The Demand-Pull Theory
 when demand for goods and services exceeds existing
supplies
Practice
 Read each scenario
 Determine is that person is better off, the same, or
worse due to the inflation?
Harm? Gain? Unaffected?
 A farmer buys machinery with a fixed-rate loan to be repaid over a 10-year period.
 G - Farmer makes payments that are less in real terms than the loan amount.
 Your family buys a new home with an adjustable-rate mortgage.
 U- It depends on what happens to the future interest rate relative to the inflation rate.
 If the real interest rate rises, the family will be hurt.
 Your savings from your summer job are in a savings account paying a fixed rate of interest.
 H - The return from savings will be worth less because of inflation and the fixed rate of
 return.
 Your friend rents an apartment with a three-year lease.
 G - Rent payments will be lower in real terms.
 A widow lives entirely on income from fixed-rate corporate bonds
 H - The purchasing power of the income will be less as inflation continues to deflate
the
 value of the dollar.
 Parents are putting savings for their child's college education in a bank savings account.
 U - It depends on the return on the savings relative to the inflation rate.
Resources
 http://teachinghighschooleconomics.blogspot.com/2011/05






/inflation-on-pbs-newshour.html
http://www.agmrc.org/renewable_energy/biofuelsbiorefini
ng_general/what-is-driving-food-price-inflation/
Food prices
http://www.ifpri.org/sites/default/files/pubs/pubs/confpa
pers/20080322jvbchinaforum.pdf
http://www.aae.wisc.edu/renk/library/cfrb_january2009_2
58a.pdf
http://www.stlouisfed.org/education_resources/assets/less
on_plans/MarketBasketLesson.pdf
http://www.thepeoplehistory.com/70yearsofpricechange.ht
ml
Calculating Inflation
 To determine the inflation
rate from one year to the
next, use the following
steps.
Review
 True, false or uncertain, and explain why? "Gross
domestic product measures the amount of wealth in
 the economy."
 False. GDP measures a stream of production or
income in particular year or period
 of time. Wealth includes the current value of
current value of goods and services
 produced in past years.
 True, false or uncertain, and explain why? "A decrease
in gross domestic product must reduce a person's
 standard of living."
 False. GDP measures the production of the
nation. Even during recessions, many
 people’s real income rises.
 True, false or uncertain, and explain why? "If nominal
GDP increases by 5 percent and the price level
 increases by 7 percent, real GDP has decreased."
 True. Real GDP would fall by about 2 percent
because the inflation rate is higher
 than the rate of growth in nominal GDP.
 True, false or uncertain, and explain why? "Frictional
and structural unemployment are two words for
 the same thing."
 False. Structural unemployment occurs because
people do not have the skills
 necessary for the jobs available. Frictional
unemployment occurs when people are
 between jobs. They will find employment, but it
will take time to match them with
 job vacancies.
 True, false or uncertain, and explain why? "If the
economy is at full employment, the unemployment
 rate is zero."
 False. At full employment, we have frictional and
structural unemployment.
 Frictional unemployment occurs when people are
between jobs; structural
 unemployment occurs when people do not have
the skills for the jobs that are
 available.