Unemployment and Inflation

Economics defines the labor force as all nonmilitary people who are employed or unemployed.

The United States Labor Force

EmploymentMust 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.

UnemploymentMust 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 UnemploymentFrictional 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=yBSb8e-7XCQ

PracticeTravel to the area in the room based on if you

are employed or unemployed according to your scenario card

ShareUnemployed workers will then travel to the

area that designates which type of unemployment category they fall under

•http://www.youtube.com/watch?v=Gk8saiBYXIc

More PracticeJim 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 part-time 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 EffectsInflation 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 inflationhttp://www.usinflationcalculator.com/inflation

/historical-inflation-rates/

Causes of InflationThe Cost-Push Theorywhen 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

PracticeRead each scenarioDetermine 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.

Resourceshttp://teachinghighschooleconomics.blogspot.com/

2011/05/inflation-on-pbs-newshour.html

http://www.agmrc.org/renewable_energy/biofuelsbiorefining_general/what-is-driving-food-price-inflation/

Food priceshttp

://www.ifpri.org/sites/default/files/pubs/pubs/confpapers/20080322jvbchinaforum.pdf

http://www.aae.wisc.edu/renk/library/cfrb_january2009_258a.pdf

http://www.stlouisfed.org/education_resources/assets/lesson_plans/MarketBasketLesson.pdf

http://www.thepeoplehistory.com/70yearsofpricechange.html

Calculating InflationTo determine the

inflation rate from one year to the next, use the following steps.

ReviewTrue, 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, manypeople’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 skillsnecessary for the jobs available. Frictional

unemployment occurs when people arebetween jobs. They will find employment, but

it will take time to match them withjob 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; structuralunemployment occurs when people do not

have the skills for the jobs that areavailable.