1. Chapter 13: Economic Challenges

2. Unemployment 4 Types of Unemployment Frictional Unemployment
People are taking time to find another job
Dissatisfied with current job
Time off for education, or personal reasons

3. Unemployment 4 Types of Unemployment Seasonal Unemployment
Industry regularly shuts down during a particular season
Ex. – Farm laborers travel across the country to work seasonal crops
Ex. - Tax preparation jobs

4. Unemployment 4 Types of Unemployment Structural Unemployment
Structure of the economy changes, changing types of jobs available
New technologies (farm jobs disappear, new factory jobs)
Consumer demand changes
Globalization – companies relocate jobs to other countries

5. Unemployment 4 Types of Unemployment Cyclical Unemployment
Contraction and recession cause loss of jobs
Consumers have less money, demand shifts left for most products
Companies lay off workers to accommodate this decrease

6. Unemployment The Unemployment Rate
U.S. Bureau of the Census polls 50,000 families to calculate % of Americans who are looking for work, but cannot find a job
# of ppl. unemployed / # of civilians polled

7. Unemployment The Unemployment Rate
An unemployment rate of 0% is impossible
Full Employment is when there is no cyclical unemployment
Economies are considered healthy with an unemployment rate of 4-6%

8. Unemployment Problems with using Unemployment Rate as a Measure
Does not factor in underemployment – people working in jobs that are beneath their qualifications
Ex. – someone with a college degree working part time for $8.00 an hour
Does not factor in discouraged workers – people who can’t find a job, and are so frustrated that they quit looking

9. Inflation Inflation is a general increase in prices
Movie Ticket in $0.25
Movie Ticket in $7.50

10. Inflation
Inflation reduces Purchasing Power – the ability of your money to purchase goods and services
Say you have $3.00, and tacos cost $1.00 each
Your money is worth 3 tacos

11. Inflation
Inflation reduces Purchasing Power – the ability of your money to purchase goods and services
If you hold your $3.00 for a few years, and prices inflate to $1.50 for tacos…
Your money is worth 2 tacos!

12. Inflation Measuring Inflation
Level of Prices is calculated by using Price Indexes
Consumer Price Index – Bureau of Labor Statistics chooses a “market basket” of commonly bought goods, and tracks changes in price

13. Inflation
CPI = Current Price X 100
Base Period Price

14. Inflation Types of Inflation Creeping Inflation Chronic Inflation
1-3% per year, causes no problems
Chronic Inflation
Steady increase each month, takes away incentive to save and invest
Hyperinflation
Out of control, prices could double every month
Leads to total economic collapse

15. Inflation Causes of Inflation Quantity Theory
Having too much money in the economy causes inflation
Money supply should be tightly regulated by the government

16. Inflation Causes of Inflation Demand-Pull Theory
Demand for goods exceeds existing supplies
Businesses, thus, raise their prices

17. Inflation Causes of Inflation Cost-Push Theory
As costs go up for producers, they increase their prices
Ex. – Employees get a raise, so to cover the additional cost, JC Penny raises its prices by 5%
This trend is called a wage-price spiral

18. Poverty Poverty can mean different things to different people
Defined by the Census Bureau as “total income less than the amount needed to satisfy the family’s minimum needs”
Census Bureau sets the poverty threshold – income level below which family is considered impoverished

19. Poverty Sample Poverty Thresholds (U.S.)
Single parent, one child = $13,020
Two parents, two children = $19,257

20. Poverty
Poverty Rate - % of a group that falls below the poverty threshold
U.S. poverty rate is 12.7% (2004)
Poverty Rates help show factors that may contribute to poverty

21. Poverty Poverty Rates of Various Population Groups (U.S.) White = 8.6%
Black = 24.7%
Hispanic = 21.9%
2 Parent Households = 5.5%
Single Parent (Female) Household = 31.6%

22. Poverty Causes of Poverty Lack of Education
Median income for high school dropout = $18,144
Median income for high school grad or GED = $25,360
Median income for 4 year college grad = $42,404

23. Poverty Causes of Poverty Location
Higher income jobs are located in suburban areas
Large numbers of minorities concentrated in inner cities, with no means to commute

24. Poverty Causes of Poverty Racial/Gender Discrimination
Women earn $0.75 for every dollar men make
Blacks and Hispanics make $0.60 for every dollar whites make
Result of education, location disparities, but also discrimination

25. Poverty Causes of Poverty Economic Shifts
Laborers frequently lose their jobs as new technology replaces them
Without education and training, they can become left out of the new workforce

26. Poverty Causes of Poverty Shifts in Family Structure
Divorce rate continues to rise, and single parent families are much more likely to be impoverished

27. Income Distribution
Income Distribution – how the nation’s total income is distributed among the population
Shows gap between rich and poor

28. Income Distribution Calculating Income Distribution
Divide the nation into 5 parts based on income (ex. Highest 5th, next highest 5th, etc.)
Total the incomes of each of the 5 parts
Compute % of income each group has

29. Income Distribution Graphing Income Distribution
The Lorenz Curve shows how “unequal” the distribution is

31. Income Distribution U.S. Income Distribution Lowest 5th – 3.6%
Second 5th – 8.9%
Third 5th – 15%
Fourth 5th – 23.2%
Highest 5th – 49.4%

32. Why the Income Gap?
Differences in Skill and Effort – Workers with higher skill levels work more hours at more demanding jobs
Inheritances – many Americans inherit large sums of money and invest it, producing more income

33. How to Fix Poverty No “for sure” solution, but many suggestions
Enterprise Zones – government lifts all taxes in run-down areas, thus encouraging new businesses

34. How to Fix Poverty No “for sure” solution, but many suggestions
Employment Assistance – government creates job-training programs for workers who lack skills and institutes a minimum wage

35. How to Fix Poverty No “for sure” solution, but many suggestions
Welfare Reform
Welfare – government gives poor people money to cover basic needs, such as food, health care, etc.

36. How to Fix Poverty No “for sure” solution, but many suggestions
Welfare Reform
Reform is labeled “workfare” – a program to give temporary assistance until the recipient can find a job