1. ECONOMIC CHALLENGES

2. What do I need to know? Economic growth, inflation, & unemployment are key measures of economic activity.

4. Labor - The effort that people devote to a task for which they are paid Labor Force – civilian men and women, 16 and older who are working or looking for work Unemployment – civilian men and women, 16 and older, who are actively looking for work

5. Unemployment rate  The percentage of the nation’s labor force that is unemployed  Formula = # unemployed Total # in labor force

6. 4 Types of Unemployment

7. Structural Unemployment Technology Obsolete Product Job is now overseas

8. Structural Unemployment Unemployment that occurs when workers’ skills do not match the jobs that are available

9. Reasons 1.Changes in consumer demand 2.Lack of education or training for skills in demand 3.Discovery of new resources or technology 4.Jobs move to other countries

10. Frictional Unemployment People Looking for Work

11. Frictional Unemployment Unemployment that occurs when people take time to find a job

12. Reasons: People changing jobs Getting laid off Taking time off from working for a variety of reasons Taking time to find a job after graduation

13. Cyclical Unemployment

14. 1.Unemployment that rises during economic downturns and falls when the economy improves 2.Corresponds with the business cycle

15. Seasonal Unemployment

16. Unemployment that occurs as a result of harvest schedules or vacations, or when industries slow or shut down for a season

17. Unemployment is a sign of economic health Full Employment = 3% TO 5% Everyone who wants a job has one There is no cyclical unemployment 0 unemployment will not be achieved because there will always be frictional, seasonal, & structural unemployment

18. Do you understand? Unemployment and inflation and how they are used to measure the economic health of our country?

19. Inflation

20. A general increase in prices of all of the market basket items

21. Deflation A sustained drop in the price level

22. Inflation rate The percentage rate of change in price level over time

23. Purchasing power The ability to purchase goods & services

24. 1.It erodes purchasing power 2.If the inflation rate is higher than the interest rate, savers lose money EFFECTS OF INFLATION

25. 3. PEOPLE WHO LIVE ON FIXED INCOMES (ELDERLY & POOR) SUFFER THE MOST EFFECTS OF INFLATION

26. Inflation reduces people’s purchasing power because the same amount of money buys fewer goods and services Turn and talk: How does this work when gas goes from $2.00 to $4.00 a gallon?

27. Measuring inflation & prices

28. Price index Measurement that shows how the average price for a standard group of goods in a “market basket” changes over time

29.  An index determined by measuring the price of standard goods bought by urban consumers.  Used to compare the cost of a group of goods in a period of time to the cost of a similar group of goods in a previous period of time.  A “base” year is established as a starting point for measuring price changes. Consumer Price Index (CPI)

30. The “market basket” has 8 categories of goods and services that are compared 1. FOOD & DRINKS

31. The market basket 8 categories 2. HOUSING

32. The market basket 8 categories 3. APPAREL & UPKEEP

33. The market basket 8 categories 4. TRANSPORTATION

34. The market basket 8 categories 5. MEDICAL CARE

35. The market basket 8 categories 6. ENTERTAINMENT

36. The market basket 8 categories 7. EDUCATION & COMMUNICATION

37. The market basket 8 categories OTHER GOODS & SERVICES

38. WHAT ARE THE DIFFERENT THEORIES THAT DESCRIBE INFLATION AND ITS CAUSES?

39. Money is not scarce so…it is not as valuable

40. Who controls the nation’s money supply?

41. The Federal Reserve System (FED)

42. C + I + G + (X - M) = Real GDP CONSUMERS BUY MORE GOODS AND SERVICES BUSINESS BUY ( INVEST) MORE RESOURCES GOVERNMENT BUYS MORE GOODS OR SERVICES

43. AGGREGATE DEMAND SHIFT S Real GDP Price Level AD1 AS P1 AD2 P2 INFLATION

44. Peak Business Cycle INFLATION UNEMPLOYMENT FULL EMPLOYMENT leads buyers to bid up prices FULL EMPLOYMENT

45. STAGFLATION = HIGH UNEMPLOYMENT & INFLATION

46. Inflation occurs when producers are greedy or raise prices to meet increased costs Ex: higher prices for raw materials leads to price increase Cost- Push Theory

47. Quiz 1.Define GDP. 2.How is it calculated? 3.Define labor force. 4.Define unemployment. 5.What are 4 types of unemployment and give an example of each. 6.Define inflation. 7.What are 3 economic indicators and what do they tell us about the economy. 8.Who is your favorite music artist?

48. Do you understand? Unemployment and inflation and how they are used to measure the economic health of our country?

49. ANSWER Unemployment and inflation correlate to the economy. When unemployment and inflation are high, the economy is bad. When unemployment and inflation are low, the economy is good.