1. Chapter 17 Stabilizing the National Economy

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3. Section 1: Unemployment and Inflation In order to make the future more predictable for planning, saving, and investing, the government uses stabilization policies: monetary and fiscal policy

4. Unemployment Causes uncertainty in the economy The unemployment rate is the percentage of the civilian labor force that is without jobs but actively looking for work Unemployment means a waste of human resources  government works to keep unemployment rate low

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6. 4 Types of Unemployment Cyclical Structural Seasonal Frictional

7. Cyclical Unemployment Associated with the ups and downs of the business cycle

8. Structural Unemployment Caused by changes in the makeup of the economy (new technology) Ex: workers replaced by computers or machines Affects less skilled workers the hardest

9. Seasonal Unemployment Caused by changes in weather Affects mostly construction workers and farmers

10. Frictional Unemployment Temporary unemployment between jobs Will always exist

11. Full Employment Economists today have come to consider the economy to be at full employment when the unemployment rate is less than 5%. Unemployment is difficult to measure accurately because of the underground economy.

12. Inflation A major obstacle to economic stability People have come to expect prices to rise about 3% a year, but unpredictable inflation can destabilize the economy May affect interest rates and standard of living

13. 2 Kinds of Inflation Demand-Pull Inflation Cost-Push Inflation

14. Name some factors that could cause the price of each of the following to go up: Oil, medical care, orange juice, automobiles

15. Demand Pull Inflation Theory that prices rise as a result of excessive business and consumer demand; demand increases faster than total supply, resulting in shortages that lead to higher prices Can result from loose-money policy, tax reduction, natural disaster, or holidays

16. Cost-Push Inflation Demand-pull theory assumes that increased demand will increase output and reduce unemployment, but rising prices and rising unemployment can happen at the same time  Cost-Push Theory Theory that higher wages and profits push up prices Can result in stagflation, a combination of inflation and low economic activity