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Economic Instability. Unemployment What does it mean to be unemployed? – People available for work who made specific effort to find a job NYS definition:

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Presentation on theme: "Economic Instability. Unemployment What does it mean to be unemployed? – People available for work who made specific effort to find a job NYS definition:"— Presentation transcript:

1 Economic Instability

2 Unemployment What does it mean to be unemployed? – People available for work who made specific effort to find a job NYS definition: – Persons are classified as unemployed if they do not have a job, have actively looked for work in the prior 4 weeks, and are currently available for work. Actively looking for work may consist of any of the following activities: Contacting: – An employer directly or having a job interview – A public or private employment agency – Friends or relatives A school or university employment center Sending out resumes or filling out applications Placing or answering advertisements Checking union or professional registers Some other means of active job search

3 Unemployment Rate Currently – May 2013: 7.6% – April 2014: 6.3% The number of unemployed individuals divided by the total number of individuals in the civilian workforce Full employment or natural unemployment – 4%

4 Inflation – A general increase in prices and fall in the purchasing value of money Price Level – The relative magnitude of prices at one point in time The inflation rate is measured using the CPI – Consumer Price Index Prices tend to rise faster during expansions and slower during recessions

5 Inflation Degrees of Inflation – Creeping inflation Inflation in the range of 1 to 3 percent per year – Galloping Inflation Inflation in the range of 100 to 300 percent per year – Hyperinflation Inflation in the range of 500 percent or more – Hungary after WWII 82,000,000,000,000,000,000,000,000,000 (82 octillion) pengos post war equaled 82 pengos pre-war

6 Causes of Inflation Prices can be “pulled up” due to excessive demand – Consumers and producers buy more than can be supplied which creates a shortage and causes prices to increase Deficit Spending – The federal government spends too much which devalues the currency

7 Causes of Inflation Rising input costs (factors of production) – A sudden rise in the costs of the factors of production (minimum wage) causes prices of manufactured goods to increase The Cycle Theory – A self-perpetuating cycle where workers ask for higher wages and prices increase

8 Causes of Inflation The final and most popular theory: – Excessive Monetary Growth Basically, the money supply grows faster than the GDP How does this happen? – The Federal Reserve System prints too much money into circulation

9 Consequences of Inflation The dollar buys less – The purchasing power of the dollar falls as the prices rise People’s spending habits can change – When prices went up in the 80s and interest rates grew, purchases of durable goods fell dramatically


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