Download Unemployment - Mr. Kleinheksel

 We need to understand the following terms first.
 Population, Labor Force, Civilian Labor Force, and
Labor Force Participation Rate
 The population in the United States is 300,000,000
(Oct. 2006)
 The civilian labor force is the total number of people in
an economy that are considered employed and
unemployed.
 As of Oct. 2006 there were an estimated 151,998,000
people in the civilian labor force.
 Employed
 To be considered
employed a person must
be 16 years old and
noninstitutionalized and
fit the following criteria:
 Get paid for work in the
last week
 Work for a family business
without pay
 Have a job, but not working
for the following reasons:
sickness, vacation, labor
disputes, bad weather
 145,287,000
 Unemployed
 To be considered
unemployed a person
must be 16 years old
noninstitutionalized, and
fit the following criteria:
 Had no employment
 Were available for work
(except illness) and had
made specific efforts to
find employment at
sometime during the last 4
weeks
 6,711,000
 Civilian Labor
Force=151,998,000
 The portion of the civilians 16 years and older that are
in the civilian labor force.
 151,998,000 the civilian labor force divided by
229,604,000 civilians able to work.
 Labor Force Participation Rate= 66.2%
 Important?
 This is one way that an economy can increase or
decrease their production possibilities curve.
 Why do individuals drop out of the labor force?
 Discouraged worker, no line of work for them, back to
school, homemaker, lack skills or schooling, increase or
decrease in institutions, change in military enrollment
 Percentage of labor force that fall in the unemployed
workers criteria.
 2006= 4.4%
 2010=9.6%
 Structural:
 Long-run Unemployment
 Jobs that become obsolete because of a change in market
conditions or technology
 Ex. Miners, Milkman, Shipbuilder
 Frictional Unemployment
 Short term unemployment
 Ex. People Fired, laid off, or quit their job and are out
looking for another job.
 Or... Recent graduates looking for their first job.
 Cyclical Unemployment
 Periodic Unemployment caused by fluctuations in the
business cycle.
 Boom period= low cyclical unemployment
 Bust period= high cyclical unemployment
 The unemployment rate where there is no cyclical
unemployment.
 = structural + frictional
 AKA- Full Employment
 Potential Output- the amount of productivity that can
be sustained in the long run by looking at the size of
the labor force, natural rate of unemployment, and the
expected productivity.
4-6% over last 60
years
Inflation
Inflation
 General rise in the level of prices over time
 Effects of Inflation:
 Purchasing Power
 Income
 Nominal income= what you are actually receiving for wages, rent, or
profits.
 Real income= what you can actually buy with the nominal income
that you are receiving.
 Interest Rates
 Nominal Interest Rates- the amount of money a person pays to
borrow money, or a person receives for lending money.
 Real Interest Rates- the amount of money a person pays to borrow
money, or a person receives for lending money after inflation is
subtracted.
Types of Inflation
 Demand-Pull Inflation:

Excess spending in an
economy beyond its capability
of producing leads to a situation
that pulls the prices up. This
type of inflation does not cause
huge implications with the
economy except it slows the
growth back within the
economies capabilities. This
type of inflation is depicted by
an increase in demand.
 Cost-Push Inflation:

Factors that raise the cost
of production and pushes up the
cost of goods being produced.
This type of inflation has
generally causes more
unemployment, and can send an
economy into a further
contraction or recession because
the real output being produced
is slowed by the rising costs of
production. This type of
inflation generally causes
“stagflation”, and is depicted by
a decrease in supply.
Anticipated Inflation
 The effect of this inflation is very minimal, because
different parties involved can adjust their incomes or
price levels to minimize the effects of the inflation.
Unanticipated Inflation
 The effect is greater when business, banks, and
individuals do not anticipate a level of inflation, and
this unanticipated inflation affects how real income is
distributed, helping some and harming others.
 This is the type of inflation we will spend the majority
of our time discussing, because it has more of an
impact.
Who is Hurt?
 Fixed Income Receivers
 Savers
 Creditors/Banks/Lenders
 Interest Rates
 Nominal Interest Rates- the amount of money a person pays
to borrow money, or a person receives for lending money.
 Real Interest Rates- the amount of money a person pays to
borrow money, or a person receives for lending money after
inflation is subtracted.
Who is Helped or Unaffected?
 Flexible Income Receivers
 COLA’s
 Debtors/Borrowers
 Individuals who borrow
 Governments that borrow