Economic Challenges CHAPTER 11 SECTION 1: Unemployment Holt Economics 4/17/2017 CHAPTER 11 Economic Challenges SECTION 1: Unemployment SECTION 2: Inflation SECTION 3: Poverty and Income Distribution Chapter 11

Unemployment rate Unemployment Unemployment - Individuals ages 16 and older are classified as employed if during the survey week they: Worked for pay or profit one or more hours Worked without pay in a family business 15 or more hours Have jobs but did not work as a result of illness, weather vacations, or labor disputes Unemployment rate a labor force statistic the percentage of people in the nonmilitary labor force who are unemployed 5% is considered healthy This rate tends to rise in recession and fall during expansion Most closely watched and highly publicized labor force statistic Census Bureau conducts the Current Population Survey which collects data on the labor force.

Four major types of unemployment: SECTION 1 Unemployment Four major types of unemployment: Frictional – workers move from one job to another Structural – changes in technology Seasonal – employment changes from season to season Cyclical – results from recessions & economic downturns (most harmful)

Economic costs of high unemployment: 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 Full-Employment- this does not mean everyone has a job and that the unemployment rate is 0…so economists generally consider an unemployment rate of about 5% to represent full employment Under-employed – workers who have jobs beneath their skill level or who want full-time work but are only able to find part-time jobs

What economists examine when evaluating price fluctuations: SECTION 2 Inflation What economists examine when evaluating price fluctuations: price levels Inflation – an increase in the average price level…thus, inflation reduces the real purchasing power of the dollar Deflation – a decrease in the average price level…thus, deflation boosts the real purchasing power of the dollar

Causes of inflation: Inflation SECTION 2 demand-pull inflation—when demand surpasses production cost-push inflation—when producers increase prices to cover higher resource costs future price expectations –when consumers expect prices to increase, they tend to buy immediately to take advantage of lower prices… as a result aggregate demand increases and inflation rises and vice versa

Main price indexes that economists use to measure inflation: SECTION 2 Inflation Main price indexes that economists use to measure inflation: consumer price index – a measure of the average change over time in the price of a fixed group of products (ie. Food, clothing, shelter, utilities, etc. producer price index – a measure of the average change over time in the prices of goods and services bought by producers

Effects of inflation: Inflation SECTION 2 decreased purchasing power of the dollar decreased value of real wages decreased saving and investing increased interest rates increased production costs

SECTION 3 Poverty and Income Distribution The poverty threshold (poverty level) —the lowest income that a household of a certain size or composition needs to maintain a basic standard of living—is used to determine the poverty rate in the United States.

Two Ways Economists Measure Distribution of Income Lorenz Curve Gini Index

Federal policies to reduce the income gap and decrease poverty: SECTION 3 Poverty 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 – this is done via taxation and then give to those who are impoverished through entitlement programs or through tax credits. raising minimum wage setting wage levels prohibiting companies from building in foreign countries where labor is cheaper

Limitations of Income Distribution Data used to determine the distribution of income are based on families’ or households’gross incomes before deductions for such expenses as personal income taxes, Social Security, Medicare, health insurance, and union dues. Income also does not include capital gains or the value of non-cash benefits that families or households may receive such as food stamps, health benefits or low cost housing. Most measures of income distribution do not differentiate among families or households of different sizes and ages or number of wage earners.

Equal Outcome VS. Equal Opportunity The economic and political system of the United States allows for ALL to have an equal opportunity to succeed. BUT….an equal outcome for everyone is not guaranteed in a our economy…meaning everyone is not guaranteed a job with a 6 figure salary and a corner office. We are given the tools to succeed…it’s what we do with them that determines whether or not we are SUCCESSFUL!!

Quiz 1. Which type of unemployment is most damaging to the U.S economy? Explain your answer. 2. Explain the concept of full employment. Identify the following as exampes 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 workers 4. What are some of some of the limitations of income distribution measurements?