Chapter 13 Unemployment/Inflation/Poverty

Employment Employment is considered if: * You work at least one or more hours * Work without pay in a family business 15 or more hours * Have a job but don’t work because of illness, weather, vacations, or labor disputes

So what is unemployment? You want a job but you don’t work--- thus you don’t have a job.

Marginally attached worker— People who once held a productive job but have given up looking for work

Discouraged Worker– Are unemployed workers who are not seeking employment because of job-related reasons. Underemployed—People working in a job for which they are over qualified, or working in a part-time job when full- employment is desired (wanted)

FOUR Types of Unemployment Frictional Unemployment Structural Unemployment Seasonal Unemployment Cyclical Unemployment

Frictional Unemployment Frictional unemployment is unemployment which is temporary caused by factors that are not related to the business cycle Frictional unemployment is unemployment which is temporary caused by factors that are not related to the business cycle Example: Someone who retires or someone who gets a new job Example: Someone who retires or someone who gets a new job

Structural Unemployment Structural unemployment is unemployment that is caused by changes in technology, government policies,, long-term consumer demand for certain products, population trends, and other factors unrelated to the business cycle Structural unemployment is unemployment that is caused by changes in technology, government policies,, long-term consumer demand for certain products, population trends, and other factors unrelated to the business cycle Example: Computer Programmer needing to keep up on technology in order to keep his/her job Example: Computer Programmer needing to keep up on technology in order to keep his/her job

Seasonal Unemployment Seasonal unemployment is unemployment that results from seasonal variations in the economy Seasonal unemployment is unemployment that results from seasonal variations in the economy Example: Snow plow driver in the winter or a construction road worker filling pot holes in the summer time Example: Snow plow driver in the winter or a construction road worker filling pot holes in the summer time

Cyclical Unemployment Cyclical unemployment is unemployment that is caused by downturns in the business cycle Cyclical unemployment is unemployment that is caused by downturns in the business cycle Example: economy in the U.S.A. the past Example: economy in the U.S.A. the past couple of years couple of years

What is inflation? Inflation is an increase in overall prices that result from rising wages, an increased money supply, and increased spending relative to the supply of products Inflation is an increase in overall prices that result from rising wages, an increased money supply, and increased spending relative to the supply of products In other words, too many dollars chasing too little goods In other words, too many dollars chasing too little goods

What causes inflation? (101)  1. Businesses and consumers increase their spending on products/service  2. Demand out paces supply (people/businesses want too much ASAP)  3. Businesses are forced to raise their prices for products/services  4. Demand continues to rise  5. Prices continue to rise

How do we bring inflation down?  6. Consumers decide to reduce their purchases  7. This makes more products/services more available  8. Businesses then are forced to cut prices  Great example: Gas Prices

What are the Consequences of Unemployment and Inflation? Income effects of unemployment – Unemployed people must live on reduced incomes – Unemployment hurts many people who are not unemployed too

Real output effects of unemployment in an economy. The economy is not producing all it could, and goods not produced because of unemployment are gone forever – When capital goods aren’t sold it will reduce the growth future

Social effects of unemployment in a society includes……… depressed, and health issues Suicides increase families break up there is more child abuse crime rates increase

Income effects of inflation People on fixed incomes suffer greatly because the value of the dollar is not as high. – Property owners benefit – Good for debtors It hurts creditors

How do you measure inflation? Economists look to TWO key indexes to determine the inflation status in the country. Consumer Price index or (CPI )—this measures the average change overtime in the price groups of products Example: They calculate and measure what we spend on everyday goods and services (food, clothing, shelter, utilities, entertainment, healthcare)

How do you measure inflation? Producer price index or (PPI)— measures the average change overtime in the prices of goods and services bought by consumers. Example: They measure and calculate the inflation rate or how fast the prices are changing in an economy

What is Poverty Threshold? Poverty Threshold or the poverty line in the lowest income—as determined by the government—that a family or household of a certain size or composition needs to maintain a basic standard of living

Poverty Rate as of 2011 Poverty Rate as of 2011 Family Income 1$10,800 2$14,710 3$18,530 4$22,350 5$26,170 6$29,990 7$33,810 8$37,630

How do you measure income? Lorenz Curve — Lorenz Curve — A graph showing how equally income is distributed in the economy A graph showing how equally income is distributed in the economy

How do you measure income? The Gini Index —A mathematical measure of income inequality in an economy The Gini Index —A mathematical measure of income inequality in an economy

What policies has the U.S. government used to reduce the income gap and reduce poverty? 1. The Earned Income Tax Credit –Tax credit w/ low income w/ a singled/married/ families 2. Enterprise Zones –A state/county/city make an area tax free and/or reduce or make regular restrictions easier to create a business 3. Employment Assistance –Job training programs –Increasing the minimum wage to $ Housing Assistance –Low income receives vouchers where the gov’t helps pay for your rent 5. Welfare Reform –Temporary Assistance for Needy Families (TANF) –Workfare; a program work in exchange for temporary assistance from the government 6. Disallow businesses to go overseas—no tax advantages

TWO Essay Questions Essay #1 : List and explain the four types of unemployment. Give an example of each unemployment. Essay #1 : List and explain the four types of unemployment. Give an example of each unemployment. Essay #2 : Inflation 101 Essay #2 : Inflation 101 Describe the five steps which lead us into inflation and the three steps which help reduce inflation (from the overhead from Mr. Makela). Describe the five steps which lead us into inflation and the three steps which help reduce inflation (from the overhead from Mr. Makela). Secondly, explain how inflation can hurt an economy. Secondly, explain how inflation can hurt an economy. Finally, what is the FED? How does it impact inflation in relations to interest rates and the impact on the world economy? Finally, what is the FED? How does it impact inflation in relations to interest rates and the impact on the world economy?

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