1. Unit 3: Macroeconomics
Lesson 4: Economic Challenges

2. Unemployment
Definition: individuals who are 16+ years of age, actively seeking work, and who have not worked during the survey week…
● for pay for one or more hours
● without pay in a family business for hours
● due to illness, weather, or vacation (but have a job)

3. Unemployment
Unemployment Rate: percentage of people in civilian workforce who are unemployed
3. Full Employment: 4-6% unemployment rate

4. Unemployment 4. Types of Unemployment Type Definition Example Impact
Frictional
temporary due to workers changing jobs
receptionist
mild
Structural
caused by changes in technology
TV repair
moderate
Seasonal
results from seasonal change in economy
migrant
Cyclical
caused by recession or downturn in economy
industry wide
severe

5. U.S. Unemployment Rate %
Unemployment rate reached a 40-year peak in 1982
In what years was unemployment rate considered normal for economy?

6. Inflation
Definition: a general increase in prices that results in decreased purchasing power
1908
1955
2003
$850
$3,000
$19,000

7. Inflation
Price Index: a measurement that shows how average prices of standard groups of goods change over time
● Consumer Price Index: CPI is determined by measuring price of a “market basket”
● Market Basket: a representative collection of goods and services

8. CPI Market Basket Items
Category
Examples
Food and Drink
cereals, coffee, milk
Housing
rent, homeowner costs
Apparel
shirts, dresses, jewelry
Transportation
airfare, gas, auto insurance
Medical Care
prescriptions, doctor fees
Education
tuition, computer, books
Entertainment
movies, newspapers, toys

9. CPI (Year B) – CPI (Year A)
Inflation
Price Index
● Inflation Rate: the percentage rate of change in price level over time
CPI (Year B) – CPI (Year A)
Inflation = X 100
CPI (Year A)

10. Inflation Causes of Inflation
● Quantity Theory: too much money in the economy
● Demand-Pull Theory: demand for goods and services exceeds existing supplies
● Cost-Push Theory: increase in the cost of goods

11. Poverty
Definitions
● Poverty Threshold: the income level below which is insufficient to support a family of four ($24,300 in 2016)
● Poverty Rate: the percentage of people who live in households with income below the poverty line

12. The poverty rate began to decline during the 1960s due primarily to anti-poverty programs. How do poverty rates in the 2000s compare?

13. Poverty Rate by Group, 2003
Households headed by women, African-Americans, and Hispanics are more likely than other groups to have incomes below the poverty line. What percentage of African Americans live in poverty? Hispanics? Whites?

14. Poverty Causes of Poverty
● Lack of Education: people who lack education earn less
● Location: racial minorities tend to live in inner-cities which is far away from higher paying jobs in suburbs

15. Poverty Causes of Poverty
● Discrimination: white male workers tend to earn more money than racial minorities and women
● Economic Shift: uneducated workers are suffering from the loss of manufacturing jobs

17. Poverty Causes of Poverty
● Family Structure Shift: an increase in divorce rate has resulted in more single-parent households

18. Poverty Measuring Inequality
● Income Distribution: how the nation’s total income is distributed among the population
Quintile (in Fifths)
Income (%)
Lowest
3.4%
Second
8.7%
Middle
14.8%
Fourth
23.4%
Highest
49.8%
The table shows family income ranked by category. What percentage of total income did the lowest three fifths of households make in 2003?

19. Percent of Total Income in 2003
Quintile
Percent of Income for Quintile
Cumulative: Percent of Income for this and lower Quintiles
Lowest
3.4%
Second
8.7%
12.1%
Middle
14.8%
26.9%
Fourth
23.4%
50.2%
Highest
49.8%
100.0%

20. Poverty Measuring Inequality
● Lorenz Curve: illustrates the distribution of income in the economy ●
Distribution of income in U.S. in 2003
% of total income
100 80 60 40 20
Equality of income
Actual Distribution ● ● ● ●
Fifths of total families
1st 2nd 3rd 4th 5th