Facing Economic Challenges

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Facing Economic Challenges

• Economics Chapter 12 Notes

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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.
• As the nation goes through business cycles, it
  faces the problems of unemployment and inflation.
• Persistent unemployment can lead to poverty.
• During periods of inflation, wages buy less.

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Measuring Unemployment

• The Unemployment Rate
• Civilian labor forcepeople over 16 who are
  working, looking for work
• Bureau of Labor Statistics determines
  unemployment rate
• divides number of unemployed workers by total in
  civilian labor force
• does not count discouraged who have stopped
  looking or underemployed
• Underemployedwork part-time, want full-time or
  work below skill level

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Measuring Unemployment

• Full Employment
• Full employmentno unemployment caused by
  decreased economic activity
• 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
• Frictional unemployment not a threat to economic
  stability.
• 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
• Employers lay off workers during low points in
  business cycle
• During recession, hard to find new jobs since
  demand for labor drops
• Unemployment period varies by type average
  relatively short
• over one third of unemployed find work in five
  weeks or less

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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
• differs by size of household
• adjusted annually

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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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The Problem of Poverty

• 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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Antipoverty Programs

• Programs for Low-Income Households
• 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
• Social Security, Medicare funded by payroll
  taxes reduced poverty
• Unemployment insurance paid mostly by taxes on
  employer

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Antipoverty Programs

• Other Programs
• Some programs supplement the largest programs,
  including
• Community Services Block Grants, job training,
  Empowerment Zones
• In 1996, federal welfare programs changed to
  welfare-to-work
• workfare requires welfare recipients to do some
  work
• Temporary Assistance for Needy Families has
  five-year limit

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Inflation a rise in the general level of
prices of goods and services in an economy over a
period of time
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Inflation

• Types of Inflation
• Demand-pull Inflation- general rise in prices
  as a result of demand excesses supply in economic
  system.
• Cost-push Inflation- inflation as a result of a
  rise in prices of costs of production.
• RELATED CONCEPTS OF INFLATION
• Moderate, Creeping Galloping Inflation
• All refer to the speed of inflation
• Hyperinflation- over 50 percent per month
• Deflation - decrease in general price level
  happens rarely

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HOW DO WE MEASURE INFLATION?

• CPI / PPI
• Consumer price index- measured price changes for
  selected consumer goods.
• Producer price index-- measured price changes
  received by domestic producers.
• GDP DEFLATOR
• is a measure of the price of all the goods and
  services included in gross domestic product (GDP)

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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
• Inflation worries people about drop in standard
  of living, retirement