Chapter 11 Economic Challenges

Section 1 Unemployment

• There are four types of unemployment.

• Frictional• Structural• Seasonal• Cyclical• Measuring

Unemployment• Full Employment

Frictional Unemployment

• Frictional unemployment occurs when someone takes time to find a job.

• Taking time off

• Laid off

• Between jobs

Seasonal Unemployment

• Seasonal Unemployment occurs when one’s employment is based on factors like weather and climate.

• Construction workers• Farm workers• fishermen

Structural Unemployment

• Structural unemployment occurs when worker’s skills do not match jobs that are available.

• There are 5 major causes of structural unemployment

5 Major Causes of Structural Unemployment

• The development of new technology

• The discovery of new resources

• Changes in consumer demand

• Globalization

• Lack of education

Cyclical Unemployment

• Cyclical unemployment occurs when there are downturns and upswings in the economy.

• A casualty of “bad economic times”

• Economic measure of the economy

Full Employment

• Generally full employment cannot exist. Economists agree that full employment can be considered as the condition when there is no cyclical employment.

• 4- 6 percent considered normal• Under the above circumstances the other types of

employment still exist• Underemployment• Full employment is also referred to as the natural rate

because in theory the number of job seekers equals the number of job vacancies

Measuring Unemployment

• 3 groups- under 16 or institutionalized

• “not in the labor force”

• 16 and over willing and able to work

• Part-time workers are counted as employed

• Calculated by random survey of 60,000 households

Section 2Inflation

• The effects of rising prices

• Price indexes

• Causes of inflation

• Effects of inflation

The effects of rising prices

• Inflation- a general increase in prices

• Purchasing power- the ability to purchase goods and services

• CPI – consumer price index- a representative market basket of goods

• Hyperinflation- inflation that is out of control

Inflation Formula

• Take this year’s price index- last year’s index divide by last years index then x by 100 to express as a percentage.

• 2005 = 4.2

• 2006 = 3.4

Inflation by the numbers

• Items costing 100.00

• 1962 = 617.52

• 100.00 (2005) = 16.27 in 1962

• 1987 / 100.00 = 168.11 -2005

• 100.00- 1987 = 59.49 - 2005

Causes of Inflation

• The Quantity Theory

• Demand –Pull Theory

• Cost –Push Theory

The Quantity Theory

• This theory is based on the amount of money that remains in circulation.

• Increase the money supply while the economy is growing

Demand-Pull Theory

• The Demand- Pull theory is based on the situation where demand for goods exceeds existing supplies.

• A domino effect where prices rise when wages rise when production rises when demand rises.

Cost-Push theory

• Cost-Push – occurs when producers raise prices in order to meet increased costs.

• Higher prices for resources and or wages could cause this effect.

• The spiraling effect is similar to the demand-pull effect. Higher prices led to higher costs, wages, e.t.c

Effects of Inflation

• Purchasing Power- the largest most notable effect is on the purchasing power of your current income.

• Income- if your income adjusts with the inflation rate you are lucky, if not you suffer from raising prices.

• Interest Rates- The interest rates you receive on savings or pay on loans

Section 3Poverty

• The Poor

• Causes of Poverty

• Income Distribution

• Antipoverty Policies

The Poor

• The poverty threshold- the income level below which income is insufficient to support a family or household

• The level is currently $18,244.00

• The poverty rate is the percentage of people who live in households below the poverty threshold

Causes of Poverty

• Lack of Education- education is directly tied to earnings- HSDO- $18k, HSG 24k

CG $44k

• Location- the region in which you reside has an effect on your poverty level.

• Racial and Gender discrimination- whites generally earn more than minorities and men more than women

Continued

• Economic Shifts- people who lack education and skills are not very productive workers. They also tend not to be very adaptive to new technologies and as a result they are usually the “first to go”

• These workers also suffer when shifts occur from manufacturing to service and techno related jobs move in.

• Shifts in family structure- more single parent families

Income distribution

• The median income is the US in 2001 was $ 42,200.

• A measure of how the nation’s total income is distributed among its population

Reading

• Chapter 21-3

• Pages 551-558 and 564-567

Any Questions