Economic Instability Ch. 13 Economics Mr. Bennett

Inflation Inflation – increase in the general level of prices of goods & services. An increase in prices without an increase in income can be disruptive to an economy b/c consumers will have less money to spend (aka Disposable Income). Deflation – decrease in the general level of prices of goods & services. Price Index – a number that compares prices in 1 year with a prior year (base year). Consumer Price Index (CPI) – a number used to measure price changes for a representative sample (market basket) of frequently used consumer items.

Causes of Inflation Demand Pull Cost Push Wage Price Spiral All the sectors of the Economy are demanding more products than the economy can produce. Thus prices are pulled up by excessive demand Cost Push Occurs when input (resources) costs increase, thus driving (pushing) up the prices of items Wage Price Spiral Naturally occurs when high prices cause workers to ask for higher wages. Then when businesses pay higher wages they attempt to recoup the money by increasing prices.

Unemployment Unemployment - is the condition of those who are willing and able to work and are actively seeking work but who do not currently work. Unemployment Rate is calculated by dividing the # of unemployed by the total civilian work force. Unemployment rate does NOT count those who have given up searching for a job.

Sources of Unemployment Frictional – people that are between jobs, short term Structural – caused by a fundamental change in the economy that reduces the demand for some workers Technological – occurs when workers are replaced by machines or other technology Cyclical – related to the swings of the business cycle. If people demand less, then less jobs will be needed to produce the products that are demanded less… (hope that makes sense). Seasonal – related to changes in weather or seasons. Handout – Identify the type of unemployment