Facing Economic Challenges

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Facing Economic Challenges

• Economics Chapter 13 Notes

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Economic Challenges

• Three economic challenges discussed in this
  chapter
• Unemployment
• Poverty and Income Distribution
• Inflation

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Economic Challenges - Unemployment

• Unemployment has a variety of causes.
• Some level of unemployment is expected, even when
  an economy is healthy.
• Underemployedwork part-time, want full-time or
  work below skill level

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Measuring Unemployment

• The Unemployment Rate
• Measure of unemployment
• Includes those over 16 who are not working, are
  able to work and actively seeking work
• Does not include military, those in prison, those
  who are not seeking a job.

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Measuring Unemployment

• Full Employment
• Always some degree of unemployment
• people relocate look for better job cant find
  appropriate job
• Unemployment rate of 4 to 6 percent considered
  full employment in U.S.
• other rates in countries with different labor
  markets, economic policies

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Types of Unemployment

• Type 1 Frictional Unemployment
• People in between jobs.
• Includes
• Childrearing parents returning to work
• new college graduates looking for first job
• experienced workers who want to switch jobs
• Reflects workers freedom to find best job for
  them at highest wage

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Types of Unemployment

• Type 2 Seasonal Unemployment
• Demand for some jobs changes dramatically from
  season to season
• construction work falls off in winter
• tourism peaks at certain times of year varies by
  region
• migrant farm work drops off in winter migrant
  families suffer

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Types of Unemployment

• Type 3 Structural Unemployment
• As businesses become more efficient, require
  fewer workers
• new technologies replace workers or require them
  to retrain
• new industries requiring specialized education do
  not employ unskilled
• change in consumer demand can shift type of
  workers needed
• offshore outsourcing sometimes leaves people out
  of work

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Types of Unemployment

• Type 4 Cyclical Unemployment
• As the nation goes through business cycles, it
  faces the problems of unemployment and inflation.
• Employers lay off workers during low points in
  business cycle

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Section 2Poverty and Income Distribution

• What Is Poverty?
• The Poverty Threshold
• People considered in poverty if income falls
  below poverty threshold
• Also called the poverty line
• Calculated based on costs of nutritious food,
  other necessities

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• The 2009 Poverty Guidelines for the 48 Contiguous
  States and the District of Columbia

Number in Family Poverty Line
1 10,830
2 14,570
3 18,310
4 22,050
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What Is Poverty?

• The Poverty Rate
• Poverty ratepercent 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
  singlemother families

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Factors Affecting Poverty

• Educationthe higher the level of education, the
  higher the income
• Discrimination against minorities, women
• sometimes face wage discrimination, occupational
  segregation
• Demographic trendssingle-parent families have
  more economic problems
• Change from manufacturing to service jobs has
  resulted in lower wages for low-skilled workers

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Income Distribution

• Income distributionhow income is divided among
  people in a nation
• Income inequalityunequal distribution of
  income some always exists

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Income Distribution
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Assistance for people in poverty

• 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 funded by federal
  and state governments
• Earned-income tax creditrefunds taxes deducted
  from paychecks
• money usually spent in own communities, helping
  boost their economies

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General Antipoverty Programs

• Social Security program pays benefits to
  retirees, survivors, disabled
• Medicare is government health insurance for
  seniors
• Unemployment insurance helps laid-off workers
  while looking for job

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Section 3 Inflation

• Definition of inflation
• A sustained rise in the general price level, or a
  sustained fall in the purchasing power of money.

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What Is the Impact of Inflation?

• Effect 1 Decreasing Value of the Dollar
• Rising consumer price index represents declining
  value of the dollar
• People on a fixed income are especially
  vulnerable
• each dollar they have buys less every year
• Inflation helps people who borrow at a fixed rate
  of interest

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What Is the Impact of Inflation?

• Effect 2 Increasing Interest Rates
• Lenders raise interest rates to ensure profit on
  loans
• Businesses avoid borrowing to expand or make
  capital improvements
• Consumers less likely to finance high-priced
  items
• Monthly credit card payments go up as rates rise

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What Is the Impact of Inflation?

• Effect 3 Decreasing Real Returns on Savings
• Interest on savings tends to increase during
  inflationary times
• Any interest you earn on investments is worth
  less than it was before

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The Effects of Inflation in the 1970s

• Background
• In the 1970s, the United States experienced the
  longest period of inflation in its history. By
  1979, inflation had risen to 10 percent per year
  or higher. Prices of consumer goods rose
  dramatically. Those on fixed incomes were
  particularly affected.
• Whats the Issue
• How did inflation affect people and businesses in
  the 1970s?
• Thinking Economically
• Name one example from each document that shows
  how inflation has a negative impact on the
  economy.
• Inflation is a general rise in price levels. Are
  the examples of price increases in documents B
  and C symptoms of inflation or isolated price
  increases?
• Compare the tone of documents A and C. Do
  economists care as much about inflation as
  consumers? Explain.