2. Facing Economic Challenges: UNEMPLOYMENT Some level of unemployment is expected, even when an economy is healthy.  labor force= people over 16 who are working, looking for work (doesn’t include active military or institutionalized citizens)  Underemployed= work part-time, want full-time or work below skill level

3. The Labor Force and Unemployment  Unemployment rate—percent of labor force that is jobless & looking for work  Unemployment rate = # of people looking for work divided by the # of people in the labor force

4. Measuring Unemployment  Full Employment  Always some degree of unemployment:  people relocate; look for better job; can’t find appropriate job  Unemployment rate of 4-6% considered full employment in U.S.

5. 4 Types of Unemployment  Frictional Unemployment  not a threat to economic stability, naturally not working  Childrearing parents returning to work  new college graduates looking for first job  Seasonal Unemployment  Demand for some jobs changes dramatically from season to season  Type 3: Structural Unemployment  As businesses become more efficient, require fewer workers  offshore outsourcing  Cyclical Unemployment  Employers lay off workers during contractions/troughs of business cycle (follows the business cycle)

6. The Impact of Unemployment  Excessive/persistent unemployment is inefficient—wastes human resources  Promotes inequality since least experienced lose jobs first  also fewer jobs means fewer opportunities to advance  Discourages workers in ability to find good job  underemployed lose motivation to do good work

7. What Is Poverty?  The Poverty Rate  Poverty rate—% of people in households below poverty threshold  based on population as a whole  Poverty does not hit all sectors of society equally. Most at risk:  Children, minorities; inner-city, rural, and single– mother families

8. Factors Affecting Poverty  Education  Discrimination  Demographic trends  Job type

9. Antipoverty Programs  Welfare—economic, social programs providing assistance to the needy  some criticized for wasting government funds, harming recipients  Food stamp program gives card, government deposits funds in account; card can be used only to buy food at grocery stores  Medicaid offers health care to low-income; funded by federal & state governments  Earned-income tax credit —refunds taxes deducted from paychecks  tax breaks, grants, job training, self-help

10. Antipoverty Programs cont.  Misc. Programs  Social Security (OASDI) program pays benefits to retirees, survivors, disabled (in NYS, recovering alcoholic, drug addict are considered disabled)  Medicare is govt health insurance for those receiving Social Security payments  Unemployment insurance helps laid-off workers while looking for job  Social Security, Medicare funded by payroll taxes; reduced poverty  Unemployment insurance paid mostly by taxes on employer

11. Antipoverty Programs cont.  Other Programs  Community Services Block Grants, job training, Empowerment Zones  In 1996, Republican-led Congress overhauled welfare programs federal welfare programs changed to welfare-to-work  workfare requires welfare recipients to do some work  Temporary Assistance for Needy Families (TANF) has 5 year limit except in NY state (Safety Net program)

12. What Is Inflation? How Is It Measured?  Inflation is…  sustained rise in the level of prices generally  sustained fall in the purchasing power of money

13. Consumer Price Index Consumer price index (CPI) measures changes in prices of products  U.S. government surveys people to learn what they buy regularly  creates a “market basket” of about 400 typical products

14. Inflation Rate: rate of change in prices over a set period of time 4 Types of Inflation Moderate/Chronic inflation —between 1-3% per year Creeping inflation —4-5% inflation over a period of time Hyperinflation—over 50% per month Deflation—decrease in general price level; happens rarely

15. What Causes Inflation? Demand-Pull Inflation  If total demand rises faster than production, it creates scarcity  demand pushes up prices for available products

16. What Causes Inflation? Cost-Push Inflation  When production costs increase, producers make less profit  Wages can be large part of production costs; wage-price spiral:  higher wages lead to higher costs, which lead to higher prices, which lead to higher wages and so on

17. What Causes Inflation? Quantity Theory  Too much money in circulation causes money’s value to decrease, and prices to feel higher

18. What Is the Impact of Inflation?  Decreasing Value of the Dollar  Increasing Interest Rates & Decreasing Real Returns on Savings