Download - Unemployment and Inflation
Ch. 13
UNEMPLOYMENT
INFLATION
A closer look….
When people are unemployed, they experience uncertainty…
on a larger scale, unemployment causes uncertainty in the American economy as a whole causing it to malfunction
Unemployment rate:the % of the civilian work force out of a job but actively looking for work
important point: maintaining a low unemp. rate is one of the major goals in stabilizing the economy
Those who have stopped looking for work
Those who work in family businesses without pay
Cyclical: Associated with ups/downs of the business cycle
Characteristics
Up during recessions
Down during recoveries or booms
Structural:
Unemp. caused by changes in the economy such as tech advances or discoveries of natural resources
Characteristics occurs when
workers are replaced by machines
Occurs when workers’ skills no longer match those needed to do a job
Seasonal Caused by changes in the
seasons or weather
CharacteristicsAffects construction workers in the north
Affects farm workers
Frictional Temporary unemp. between jobs
*firings*layoffs*retraining
Characteristics Always exists to some degree
Zero unemployment is NOT achievable or desireable
A rate of 4%-6% is generally considered acceptable
Many who have a job are underemployed…they work in jobs below their skills/training
Defined: prolonged rise in the general level of prices
High inflation is a major economic problem, especially when inflation rates change greatly from year to year.
Purchasing Power Your money buys less
Income If wage increases match the inflation rate, a worker's
real income stays the same. If income is fixed income, or income that does not increase even when prices go up, the economic effects of inflation can be devastating
Economists use price indexes…an average price of a standard group of items and how that avg. price changes over time
CPI based on a “market basket” of typical consumer products (see chart on p. 339)
1982-84 prices are the base year
Inflation of 1-3% is acceptable
PPI is similar to CPI, but tracks prices producers charge their customers
(EG, how much a steel producer charges GM for sheet metal)
Food and energy prices are volatile … can and do spike up sharply now and again.
To accurately study long-term trends in the inflation rate, economists exclude food and energy from the
“core inflation rate”
The worst kind of inflation…inflation out of control
Can be 100-500% monthly…money loses most of its value
Only occurs rarely, but when it does, it can lead to total economic collapse:
e.g. Post WWI Germany
2 main reasons why inflation occurs:
Prices rise as a result of excessive business and consumer demand.
what causes excessive demand???
3 causes:
If money supply grows too fast, consumers spend add’l money on a limited supply of goods/svcs.
If taxes are reduced, consumers have extra money to spend
If gov’t increases its spending
The bottom line:
Whatever the causes, excessive demand PULLS prices higher
(“demand – pull” inflation)
Prices go up because producers’ costs increase:
For example:1. higher costs for raw materials
2. Wage demands of labor unions
In general, as costs to produce increase, producers pass along costs to consumers…result is higher prices
The Census Bureau collects data about how many families and households live in poverty.
The Poverty Threshold …is an income
level below which income is insufficient to support a family or household.
The Poverty Rate …is the % of
people in a particular group who live in households below the official poverty line.
Lack of Education The median income of high-school dropouts in 1997
was $16,818, which was just above the poverty line for a family of four.
Location On average, people who live in the inner city earn less
than people living outside the inner city.Shifts in Family Structure Increased divorce rates result in more single-parent
families and more children living in poverty.Economic Shifts Workers without college-level skills have suffered
from the ongoing decline of manufacturing, and the rise of service and high technology jobs.
Racial and Gender Discrimination Some inequality exists in wages between whites and
minorities, and men and women.
Income Gap A 1999 study showed that the richest
2.7 million Americans receive as much income after taxes as the poorest 100 million Americans…
Differences in skills, effort, and inheritances are key factors in understanding the income gap.
The Income Gap
Productivity is up…but who benefits?