Ch. 13 Economic Challenges

sizzledlickforkΔιαχείριση

28 Οκτ 2013 (πριν από 3 χρόνια και 10 μήνες)

84 εμφανίσεις

Ch. 13 Economic Challenges


Section 1
-
Unemployment

Types of unemployment


Frictional


Workers between jobs and new entrants


Structural


Caused by fundamental change in
economy, certain skills no longer needed


Farmers, auto industry, military bases


Technology


automation of jobs

Types of unemployment


Cyclical


Directly related to the business cycle
-
unemployment that rises during economic
downturns and falls when economy improves


Consumers put off purchases during a
recession


corresponding industries lay
-
off workers


Seasonal


Gift wrappers, lifeguards


Measuring Employment

Each month, the Bureau of Labor Statistics surveys households to

determine how many people are employed and how many are

unemployed. This survey helps determine the unemployment rate.

Unemployment Formula




Number of people unemployed

X 100



Number of people in civilian *labor force



*LABOR FORCE

=
all nonmilitary people who are employed

(16 yrs. or
older and worked at least one hour for pay within past week; worked 15 or more
hours without pay in a family business, or held jobs but did not work due to
illnesses, vacations, labor disputes, or bad weather
)
or unemployed
(
must have
work lined up for the future, or must be actively searching for a new job)

Examples of people who are
outside labor force:


Full
-
time student



Parent who stays home to
raise children



Retirees





Not considered unemployed
so they are not counted in
employment statistics


Measuring Unemployment


Unemployment rate


# unemployed/civilian labor force


Understates employment conditions


Labor force ‘dropouts’ are not counted


Part
-
time workers are counted


Full employment


Level of employment reached when
no cyclical
unemployment exists


Efficient use of all factors of production


4
-
6% %


Underemployed


Full employment
means that nearly
everyone who wants a
job has a job. Some
people work at a job
for which they are
over
-
qualified, or
work part
-
time when
they desire full
-
time
work.


Discouraged Workers


These people have
given up hope of
finding a job.
They are not
included in the
unemployment rate
because they are
not actively
looking for work.

Inflation


Section 2


Inflation


Inflation is an increase in the general
(average)

price level of goods and
services in the economy.
Not an
increase in the price of any specific
product.




Degrees of inflation


Deflation
-
opposite of inflation


Creeping inflation


1
-
3%/year


Hyperinflation


By far the worst
kind of inflation
-
100
-
500%/year


oft敮 l敡es to tot慬 散eno浩c
collapse




Core Inflation Rate


Sometimes the inflation rate spikes up
sharply. These increases may be due in
part to increases in prices in world

food

and
oil

markets.



In order to study long
-
term trends in
the inflation rate,
analysts need to set
aside temporary spikes in food and fuel
prices.



The
core inflation rate

is the rate of
inflation excluding the effects of food
and energy prices.

The Consumer Price Index


We learned in Chapter 12 that
Nominal GDP

is
adjusted for inflation and arrives at
Real GDP
.



The most widely reported measure of inflation
is the CPI or Consumer Price Index which
measures
changes in the average price of
consumer goods and services
. It is sometimes
called the cost
-
of
-
living index. It includes only
consumer goods and services in order to
determine how rising prices affect the income
of consumers.

The Bureau of Labor Statistics of the U.S.
Department of Labor prepares the CPI


Data collectors called economic assistants
contact retail stores, homeowners, and
tenants in selected cities throughout the
U.S. and record the prices of about 80,000
a month
.(They must really enjoy shopping!)



Based on these monthly inquiries, the BLS
records average prices for a “market
basket” of different items purchased by the
typical family
.

The “Market Basket” typically
contains eight categories:



Food and beverage


Housing


Apparel and upkeep


Transportation


Medical Care


Entertainment


Education and Communication


Other Goods and Services



Approximately every 10 yrs. the items in the
market basket are updated to reflect changing
consumer buying habits

What is the basic idea behind the CPI?


The basic idea behind the CPI is to show how this price index
measures
inflation.




To determine the CPI, the BLS establishes a base period
(currently 1982
-
1984) to which it can compare current prices.



The cost of that market basket is assigned an index number of
100.



Every month, a BLS representatives updates the cost of the
same market basket of goods by rechecking all the prices. Each
updated cost is compared with the base period cost to
determine the index for that month.
As costs rise, the index
rises
.





CPI formula:
Just a
little

math



CPI =
updated cost (today)






base period cost X 100


Suppose market basket cost $200 during base pd. and $330 today




CPI =


$330


$200 x 100 =

165


CPI rose from 100 in the base period to 165 today . In other
words the
average of prices

in the economy went up.








Now we’re ready to calculate the
inflation rate

Inflation Formula:


CPI for
new year
(year A)
-

CPI for
old year (Year B)

CPI for
old year

(year B)





X 100

Causes of inflation




Price levels rise steeply when demand > supply (wartime) or when
productivity is restricted
(drought that leads to poor harvests)



Quantity Theory


Too much money in the economy causes inflation



Demand
-
pull theory


Demand for goods and services > existing supplies



Cost
-
push theory


Producers raise prices in order to meet increased


costs. Can lead to a spiral of ever
-
higher prices


called a wage
-
price spiral.



Effects of inflation





Purchasing power

-


Purchasing
power of the dollar falls and hurts
people on fixed incomes
(income
that does not go up when prices

go up)



Spending habits



Inflation causes
people to change their spending
habits



Interest rates



when a bank’s
interest rates matches the
inflation rate, savers break even.
Lenders hurt by new higher rates
and are paid back in less

valuable
(inflated)

dollars


Section 3:

Poverty


Poverty threshold

T
he income level
below which income


is
insufficient

to
support a family or
household

Poverty


Poverty

(2009)


less than
$22,128
for a family of four



Poverty rate



Percentage of people
who live in households with income
below the official poverty threshold.


Rates differ according to different
indicators:
Race/ethnic origin, type of
family, age and residence.

What causes poverty?


Lack of education



high school graduates earned about 1/3
more than dropouts. College graduates earned about 3x as much.
Are
YOU

going to graduate from high school?



Location



People who live in inner city and rural areas earn less
than people outside the inner city.




Racial and Gender Discrimination



On the average, white
workers earn more than minority workers and men earn more
than women. This type of discrimination has been diminishing.



More causes of poverty






Economic shifts



Last


hired and first fired



These are the workers who are
hired when the economy is
expanding but are the first to
lose their jobs when the
economy slows down. Those
without college level skills
suffer since jobs have shifted
from manufacturing to service
and high
-
technology jobs
.

More causes of poverty

Shifts in family structure



Increase in Divorce rate


Increase in children born to
unmarried parents






Result: Increased single
-
parent
families who live in poverty



Income Distribution


how the nation’s total
income is distributed among its population


Income inequality

-

The U.S. market distributes income
unevenly. To create a more equal distribution of income, the
government uses various programs to transfer money from
people with high incomes to those with low incomes:


Unemployment compensation


Food stamps


Federal minimum wage



Two key factors that contribution to differences in income
among Americans:







-

differences in skills and education






-


inheritances



Lorenz Curve



illustrates the distribution of income


in the economy

Antipoverty Policies


Income assistance


Temporary Assistance for Needy Families


General assistance


Food stamps


Medicaid


Social service programs


Job training, foster care, etc.


Tax credits


Earned Income Tax Credit


Antipoverty programs cont.


Enterprise zones


Areas where companies are encouraged to
locate free from certain taxes and regulations


Workfare programs


Exchange labor for benefits


Tax credits to companies who hire workers
previously on welfare


Negative income tax


Replace welfare


Cash payments to people below the poverty line