The Last Word: Ch 12 Review and test – Friday FrontPage: NNIGN

What other factors (besides GDP) do we use to measure the health of the economy? Unemployment Inflation

Unemployment in Today’s Economy

The Unemployment Rate Unemployment rate: the percentage of the labor force that is jobless and actively looking for work. Does not include students, inmates, retirees, or those who have given up looking for work (“discouraged workers”). Also does not count the underemployed, those who work part-time when they want full-time work or those that work at a job below their skill level (ex. engineer as fast food worker).

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Full Employment Full employment does not mean a 0% unemployment rate. Even in a healthy economy there is always some unemployment due to career changes or relocation. Economists generally agree that 4-6% is considered full employment.

Types of Unemployment Frictional unemployment: temporary unemployment experienced by people changing jobs. Seasonal unemployment: unemployment linked to seasonal work (ex. farm workers)

Structural unemployment: a situation where jobs exist but workers looking for work lack the necessary skills for these jobs. This includes jobs lost to new technology Cyclical unemployment: unemployment caused by a part of the business cycle with decreased economic activity. Types of Unemployment

Causes and Consequences of Inflation

What is inflation? Inflation is a sustained rise in the level of prices generally or a sustained fall in the purchasing power of money. ia.com/video/play/wha t-is-inflation/

How is it measured? One tool is the consumer price index (CPI) a measure of changes in the prices of goods and services commonly purchased by consumers. The US govt. surveys American consumers to see what they buy and create a “market basket” of about 400 goods and services consumed by the typical households. Each month the govt. researches prices to see how the cost of this basket changes Another is the producer price index (PPI) Gov’t researches changes in wholesale prices, reflecting changes in the prices producers receive for their goods.

How is it measured? Economists use CPI and PPI to calculate the inflation rate, the rate of change in prices over a set period of time. Rates under 1% are negligible Rates between 1-3% are moderate 50+% per month is called hyperinflation (ex. Germany , Zimbabwe ) **Though rare, a decrease in the general price level is referred to as deflation.

What is the impact of inflation? Effect 1: Decreasing Value of the Dollar Can make life especially difficult for those on fixed incomes like retirees. Effect 2: Increasing interest rates Lenders raise rates to ensure they earn money on their loans despite inflation. This makes borrowing more expensive for businesses and consumers, discouraging them from doing so. Effect 3: Decreasing real returns on savings People who save at a fixed rate get a lower rate of return on their savings