Unit 3: Macroeconomics Lesson 4: Economic Challenges

Unemployment Definition: individuals who are 16+ years of age, actively seeking work, and who have not worked during the survey week… ● for pay for one or more hours ● without pay in a family business for 15+ hours ● due to illness, weather, or vacation (but have a job)

Unemployment Unemployment Rate: percentage of people in civilian workforce who are unemployed 3. Full Employment: 4-6% unemployment rate

Unemployment 4. Types of Unemployment Type Definition Example Impact Frictional temporary due to workers changing jobs receptionist mild Structural caused by changes in technology TV repair moderate Seasonal results from seasonal change in economy migrant Cyclical caused by recession or downturn in economy industry wide severe

U.S. Unemployment Rate % Unemployment rate reached a 40-year peak in 1982 In what years was unemployment rate considered normal for economy?

Inflation Definition: a general increase in prices that results in decreased purchasing power 1908 1955 2003 $850 $3,000 $19,000

Inflation Price Index: a measurement that shows how average prices of standard groups of goods change over time ● Consumer Price Index: CPI is determined by measuring price of a “market basket” ● Market Basket: a representative collection of goods and services

CPI Market Basket Items Category Examples Food and Drink cereals, coffee, milk Housing rent, homeowner costs Apparel shirts, dresses, jewelry Transportation airfare, gas, auto insurance Medical Care prescriptions, doctor fees Education tuition, computer, books Entertainment movies, newspapers, toys

CPI (Year B) – CPI (Year A) Inflation Price Index ● Inflation Rate: the percentage rate of change in price level over time CPI (Year B) – CPI (Year A) Inflation = X 100 CPI (Year A)

Inflation Causes of Inflation ● Quantity Theory: too much money in the economy ● Demand-Pull Theory: demand for goods and services exceeds existing supplies ● Cost-Push Theory: increase in the cost of goods

Poverty Definitions ● Poverty Threshold: the income level below which is insufficient to support a family of four ($24,300 in 2016) ● Poverty Rate: the percentage of people who live in households with income below the poverty line

The poverty rate began to decline during the 1960s due primarily to anti-poverty programs. How do poverty rates in the 2000s compare?

Poverty Rate by Group, 2003 Households headed by women, African-Americans, and Hispanics are more likely than other groups to have incomes below the poverty line. What percentage of African Americans live in poverty? Hispanics? Whites?

Poverty Causes of Poverty ● Lack of Education: people who lack education earn less ● Location: racial minorities tend to live in inner-cities which is far away from higher paying jobs in suburbs

Poverty Causes of Poverty ● Discrimination: white male workers tend to earn more money than racial minorities and women ● Economic Shift: uneducated workers are suffering from the loss of manufacturing jobs

Poverty Causes of Poverty ● Family Structure Shift: an increase in divorce rate has resulted in more single-parent households

Poverty Measuring Inequality ● Income Distribution: how the nation’s total income is distributed among the population Quintile (in Fifths) Income (%) Lowest 3.4% Second 8.7% Middle 14.8% Fourth 23.4% Highest 49.8% The table shows family income ranked by category. What percentage of total income did the lowest three fifths of households make in 2003?

Percent of Total Income in 2003 Quintile Percent of Income for Quintile Cumulative: Percent of Income for this and lower Quintiles Lowest 3.4% Second 8.7% 12.1% Middle 14.8% 26.9% Fourth 23.4% 50.2% Highest 49.8% 100.0%

Poverty Measuring Inequality ● Lorenz Curve: illustrates the distribution of income in the economy ● Distribution of income in U.S. in 2003 % of total income 100 80 60 40 20 Equality of income Actual Distribution ● ● ● ● Fifths of total families 1st 2nd 3rd 4th 5th