Dr. T. Mitchell Bonneville High School, Idaho Falls, Idaho
Measuring and Monitoring Economic Performance
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FACING ECONOMIC CHALLENGES Chapter 13 Section 1
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Stimulating Economic Growth Thomas Robert Malthus: Essay on a
natural limit to economic growth. As time went on, agriculture
would produce less food per person, and millions would be thrown
into poverty and starvation.
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Measuring Unemployment Unemployment rate is the percentage of
labor force that is jobless and actively looking for work.
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Measuring Unemployment Underemployed are those who work
part-time or those who work at a job below their skill level.
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Measuring Unemployment Full employment does not mean zero
unemployment rate. Even is a healthy economy there is some level of
unemployment.
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Measuring Unemployment Full employment sometimes people are
unemployed when they move, sometimes the available job skills do
not match up to the worker skills.
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Measuring Unemployment Some segments of the population, such as
children younger than 16, the retired, and those incapable of
working, are not counted unemployed.
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Types of Unemployment Frictional unemployment: temporary
unemployment of people changing jobs. Seasonal unemployment:
unemployment linked to seasonal work. Structural unemployment: a
situation where jobs exist but workers looking for work do not have
the necessary skills for these jobs. Cyclical unemployment:
unemployment caused by a part of the business cycle with decreased
economic activity.
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Efficiency Unemployment is inefficient. It wastes human
resources, one of the key factors of economic growth Inequity
Unemployment does not follow equal opportunity rules. Those with
the least experience loss their jobs first. Discouraged Workers
Those seeking jobs may begin to lose faith in their abilities to
get a job. Impact of Unemployment
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POVERTY AND INCOME DISTRIBUTION Chapter 13 Section 2
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What is Poverty? Unemployment leads to poverty, a situation in
which a person lacks the income and resources to achieve a minimum
standard of living. This standard varies from country to country
because of different ways of life.
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What is Poverty? The U. S. government has established its own
standard for poverty based on income levels. This poverty level is
the official minimum income needed for the basic necessities of
life in the U. S.
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What is Poverty? The poverty threshold, also called the poverty
line is the amount of income the government has determined to be
necessary to meet basic needs. The threshold, first formulated in
the 1960s, was calculated by finding the cost of nutritionally
sound food and then multiplying by three, on the assumption that
food costs are about a third of persons expenses. The threshold
differs according to the size of the household, and is adjusted
annually to reflect changing prices.
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What is Poverty? The poverty rate is the percentage of people
living in households that have incomes below the poverty threshold.
Using census information, the poverty rate can be estimated for
individuals, households, and segments of the population, such as
African-Americans children or single-parent homes. Poverty, like
unemployment, does not hit all segments of society equally.
Children are especially at risk.
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Factors Affecting Poverty Education Usually a direct
relationship between level of education and income Discrimination
Certain groups sometimes face wage discrimination or occupational
discrimination Demographic Trends In 1950s only a quarter of
marriages ended in divorce, today half of marriages end in divorce.
Changes in Labor Force Labor force has changed from mainly
manufacturing to mainly service industries. Service work pays lower
wages.
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Income Distribution The U. S. has one of the highest median
family incomes in the world, yet million live in poverty. Income
distribution is the way income is divided among people in a
nation.
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The Lorenz Curve The Lorenz Curve graphically illustrates the
degree of inequity in a nation. An equal distribution of income
would show a straight diagonal line. However, income is not equally
divided. The lower the Lorenz curve dips away from the diagonal
line of equity, the greater the level of income inequity.
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Antipoverty Programs Welfare, government economic and social
programs that provide assistance to the needy. Some programs are
heavily criticized for wasting money and harming recipients. In the
1980s and 90s, the government changed to tax breaks, grants, job-
training, and other self- help initiatives in addition to cash
benefits.
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Antipoverty Programs Food banks Rent assistance Housing grants
Food stamps Energy assistance Meals on wheels Welfare-to-work
Workfare Temporary Assistance for Needy Families, has a five- year
limit.
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CAUSES AND CONSEQUENCES OF INFLATION Chapter 13 Section 3
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What is Inflation and How Is It Measured? Inflation is a
sustained rise in the general price level or a fall in the
purchasing power of money. Inflation can be measured using two very
useful tools Consumer Price Index Producer Price Index
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Consumer Price Index Consumer Price Index (CPI), is a measure
of changes in the prices of goods and services commonly purchased
by consumers. The U. S. government surveys thousands of people to
find out what goods and services they buy on a regular basis. The
government then creates a market basket of about 400 different
goods and services purchased.
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Consumer Price Index The basket is adjusted for how much of a
households budget goes to purchase each type of item. Each month,
government workers research the current prices of the items in the
basket. Current prices are compared to prices in the reference
base, which reflects the level of prices in the three years since
1982 to 1984. Those numbers are given the value of 100.
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Producer Price Index Producers also experience inflation. The
kind of inflation is measured in the Producer Price Index (PPI), a
measure of changes in the wholesale prices. The PPI is constructed
in basically the same was as the CPI, but it reflects the prices
producers receive for their goods.
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Producer Price Index The difference lies in the fees consumers
pay, such as sales tax or shipping charges. Like the CPI, the PPI
is tied to a reference base of producer prices. The indices are
grouped together by stage of production (finished goods,
intermediate goods, and raw materials). Because producers tend to
encounter inflation before consumers, PPI tends to lead CPI as and
indicator of inflation. Economists use CPI and PPI to calculate the
inflation rate, the rate of change in prices over a set period of
time.
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What causes Inflation? Economists generally distinguish between
two kinds of inflation, each with a different cause. When the
inflationary forces are on the demand side of the economy, the
result is demand-pull inflation, a situation where total demand is
rising faster than the production of goods and services.
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What causes Inflation? When the forces that lead to inflation
originate on the supply side of the economy, the result is
cost-push inflation, a situation where increases in production
costs push up prices.
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Demand-pull Inflation In demand-pull inflation, total demand
rises faster than the production of goods and services, creating a
scarcity that then drives up prices. It takes producers some time
to recognize a rise in demand and to gear up for higher production.
If the government creates too much money during the lag period
there will be too much money chasing too few goods, and prices will
rise. The creation of excess money is the main reason for
demand-pull inflation.
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Cost-Push Inflation In cost-push inflation, prices are pushed
upward by rising production costs. When production costs increase,
producers make less of a profit. If consumer demand is strong,
producers may raise their prices in order to maintain their
profits. Cost-push inflation is often the result of supply shocks
sharp increases in prices of raw material or energy. Wages are a
large part of the production costs for many goods, so rising wages
can lead to cost-push inflation.
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Impact of Inflation Decreased Value of the Dollar Increasing
Interest Rates Decreasing Real Returns on Savings