Unemployment, Inflation, Poverty

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CHAPTER 11

Economic ChallengesSECTION 1: Unemployment SECTION 2: Inflation SECTION 3: Poverty and Income Distribution

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SECTION 1

Unemployment

Objectives: What is the unemployment rate? What are the four major types of unemployment? What are the main economic costs of high unemployment?

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SECTION 1

Unemployment

Unemployment rate a labor force statistic the percentage of people in the nonmilitary labor force who are unemployed

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SECTION 1

Unemployment

Four major types of unemployment: frictional structural seasonal cyclical

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SECTION 1

Unemployment

Economic costs of high unemployment: reduced production of goods and services reduced business sales increased need for federal support of the unemployed

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SECTION 2

Inflation

Objectives: What do economists look at when evaluating price changes over time? What causes inflation? What are the two main price indexes that economists use to measure inflation? How does inflation affect the economy?6

SECTION 2

Inflation

What economists examine when evaluating price fluctuations: price levels inflation deflation

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SECTION 2

Inflation

Causes of inflation: demand-pull inflationwhen demand surpasses production cost-push inflationwhen producers increase prices to cover higher resource costs future price expectations8

SECTION 2

Inflation

Main price indexes that economists use to measure inflation: consumer price index producer price index

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SECTION 2

Inflation

Effects of inflation: decreased purchasing power of the dollar decreased value of real wages decreased saving and investing increased interest rates increased production costs10

SECTION 3Poverty and Income Distribution

Objectives: How do economists determine the number of poor people in the United States? How do economists measure the distribution of income? What policies does the U.S. government use to reduce the income gap and decrease poverty?11

SECTION 3Poverty and Income Distribution

The poverty thresholdthe lowest income that a household of a certain size or composition needs to maintain a basic standard of livingis used to determine the poverty rate in the United States.

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SECTION 3Poverty and Income Distribution

How economists measure the distribution of income: Lorenz Curve Gini Index

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SECTION 3Poverty and Income Distribution

Federal policies to reduce the income gap and decrease poverty: increasing access to educational resources providing training for low-skilled workers redistributing income raising minimum wage setting wage levels prohibiting companies from building in foreign countries where labor is cheaper14

CHAPTER 11

Wrap-Up1. Which type of unemployment is most damaging to the U.S. economy? Explain your answer. 2. Explain the concept of full employment. 3. Identify the following as examples of demand-pull inflation or cost-push inflation:a. an increase in the price of a popular toy at Christmas when the stores are sold out of the product b. an increase in the price of orange juice because of a drought in Florida c. an increase in the price of Chunky Chicken products because of a union-negotiated wage increase for production workers15

CHAPTER 11

Wrap-Up4. Calculate the consumer price index using the following hypothetical information, and determine the percentage of change in the price level from 1998 to 2000: 1998 market basket ($7,000), 2000 market basket ($10,000). 5. What are some of the limitations of income distribution measurements? 6. What is the relationship between the Lorenz Curve and the Gini Index?

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