Unemployment Chapter 14, Sections 2

Nearly 50% of the U.S. population belongs to the civilian labor force Nearly 50% of the U.S. population belongs to the civilian labor force At any one given time millions are without a job (Nov 2009 unemployment rate 10%) At any one given time millions are without a job (Nov 2009 unemployment rate 10%) Full employment (Economic Social Goals of the U.S. Full employment (Economic Social Goals of the U.S. Lowest possible unemployment rate, when economy is still growing & factors of production are being used as efficiently as possbile Lowest possible unemployment rate, when economy is still growing & factors of production are being used as efficiently as possbile Reached when unemployment rate drops below 4.5 % Reached when unemployment rate drops below 4.5 %

Unemployment Rate Unemployed – members of the civilian labor force who made an effort to find work in the previous month Unemployed – members of the civilian labor force who made an effort to find work in the previous month Unemployment rate – Unemployment rate – # of unemployed / # in civilian labor force

2009 Unemployment Rate (U.S. Bureau of Labor Statistics)

Limitations of the Unemployment Rate Does not count labor force “dropouts” Does not count labor force “dropouts” Not classified as unemployed unless they have been looking for a job Not classified as unemployed unless they have been looking for a job Does not include part-time workers Does not include part-time workers Just one hour at a minimum wage job is considered employed Just one hour at a minimum wage job is considered employed

Types of Unemployment 1. Frictional Unemployment Short-term unemployment Short-term unemployment Suffer little economic hardship Suffer little economic hardship 2. Structural Unemployment Skills required by employers do not match skills possessed by workers Skills required by employers do not match skills possessed by workers Workers either develop new skills or move to another region Workers either develop new skills or move to another region 3. Cyclical Unemployment Directly related to the business cycle Directly related to the business cycle

Types of Unemployment (continued) 4. Seasonal Unemployment Results from changes in weather or demand for certain products Results from changes in weather or demand for certain products Happens yearly regardless of health of economy Happens yearly regardless of health of economy 5. Technological Unemployment Workers with less skills, talent or education are replaced by machines Workers with less skills, talent or education are replaced by machines Automation – production with mechanical or other processes that reduce need for workers Automation – production with mechanical or other processes that reduce need for workers

Inflation Chapter 14, Section 3

Measuring Inflation (pg. 390, Figure 14.5) To find inflation we must start with finding the price level – the relative magnitude of prices at one point in time To find inflation we must start with finding the price level – the relative magnitude of prices at one point in time Select a market basket and construct a price index Select a market basket and construct a price index What are the three types of price indices (review from chapter 13)? What are the three types of price indices (review from chapter 13)?

Measuring Inflation (continued) Inflation is reported in terms of annual rates of change of the price level Inflation is reported in terms of annual rates of change of the price level inflation rate = (change in price/beginning price) x 100 inflation rate = (change in price/beginning price) x 100 Deflation – a decrease in the general price level Deflation – a decrease in the general price level Post-World War 1 recession Post-World War 1 recession The Great Depression The Great Depression

Degrees of Inflation Creeping inflation – inflation in the range of 1-3% per year Creeping inflation – inflation in the range of 1-3% per year Galloping inflation – intense form of inflation that can reach % per year Galloping inflation – intense form of inflation that can reach % per year Hyperinflation – inflation that is totally out of control…500% + per year Hyperinflation – inflation that is totally out of control…500% + per year

Causes of Inflation 1. Demand-pull theory – prices are “pulled up” by excessive demand 2. Demand-pull theory (alternate) – federal government’s deficit spending 3. Rising input costs drive up the cost of products and cause inflation 4. As wages increase, producers increase prices to try to recover 5. Excessive monetary growth

How would a sharp increase in inflation affect the following people? (answer in your notes) 1. A person who has just withdrawn a considerable amount from a savings account. 2. A doctor or staff at a large hospital. 3. A retired autoworker on a fixed pension. 4. A borrower about to repay a loan.

Consequences of Inflation (pg. 391, Figure 14.6) Decreased purchasing power of the dollar Decreased purchasing power of the dollar People change their spending habits People change their spending habits People speculate to take advantage of higher price level People speculate to take advantage of higher price level Alters the distribution of income Alters the distribution of income

HOMEWORK Chapter 14 Questions 13-23