Unemployment and Inflation Chapter 17 Section 1 Unemployment and Inflation

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Measuring Unemployment Stabilization Policies – Attempts by the federal government to keep the economy healthy; includes monetary AND fiscal policies.

Unemployment Rate % of the civilian labor force that is unemployed but actively looking for work. Michigan - September 2008 (8.5%), March 2009 (13.4%), October 2009 (14.8%), December 2009 (14.3%) United States – Sept. 08 (6%), Apr. 09 (8.6%), October 2009 (9.5%), Dec. 2009 (9.7%) Rise in unemployment is always a concern of the nation’s economic health

Full Employment When the majority of workers are employed (Under 5% unemployment)

4 Types of Unemployment Cyclical Unemployment – Unemployment associated with the ups or downs in the business cycle. Unemployment rises during recessions down during recoveries.

Cont. Structural Unemployment – Unemployment caused by changes in the economy Example – Michigan

Cont. Seasonal Unemployment – Unemployment caused by changes in seasons. Ex. Road Construction Workers

Cont. Frictional Unemployment – Temporary unemployment between jobs because of firings, layoffs, voluntary searches for new jobs, or retraining.

Inflation Inflation almost always occurs, and as long as it happens at normal reasonable pace there should not be any problems. If inflation occurs too rapidly then people’s real income (income adjusted for inflation) goes down. Retired people are the most negatively affected by inflation.

2 Types of Inflation Demand-Pull Inflation – Theory that prices rise as a result of excessive demand (by consumers and/or businesses); demand increases faster than total supply, resulting in shortages which lead to higher prices.

Cont. Cost-Push Inflation – Inflation caused by a rise in operating costs for businesses. Ex. Higher Wages or Increased Cost of Oil

Stagflation Combination of inflation and high unemployment/stagnant economy at the same time