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Do Now Chapter 13 – Economic Challenges Use the following formula to calculate the unemployment rate: Unemployment rate = Number of people unemployed.

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Presentation on theme: "Do Now Chapter 13 – Economic Challenges Use the following formula to calculate the unemployment rate: Unemployment rate = Number of people unemployed."— Presentation transcript:

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2 Do Now Chapter 13 – Economic Challenges Use the following formula to calculate the unemployment rate: Unemployment rate = Number of people unemployed X100 labor force , the number of people unemployed = 9.4 million Number of people in the civilian labor force = million _________ ÷ _________ = _________ _________ x 100 = __________ 2. In March 2010, the number of people unemployed = 15.2 million Number of people in the civilian labor force = million _________ ÷ _________ = _________ _________ x 100 = __________ % %

3 Chapter 13 – Economic Challenges Section 1 - Unemployment  Employed – people work as paid employees, own their own business, unpaid workers in a family business, people who had jobs but temporarily absent Full-time and part-time workers  Unemployed – workers without jobs, were available for work and tried to find employment in the past 4 weeks  Not in labor force – do not fit in previous two categories, full-time student, homemaker, or retiree

4 Labor Force  Labor force – Total number of workers; number of employed + unemployed workers 2007, labor force = = million Unemployment rate = (7.1/153.1) X 100 = 4.6%

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6 Types of Unemployment 1. Frictional Unemployment – always present in the economy, resulting from temporary transitions made by workers and employers; occurs when people take time to find a job 2. Seasonal Unemployment – occurs as a result of season, vacations, or when industries slow or shut down for a season 3. Structural Unemployment – workers skill do not match the jobs that are available 4. Cyclical Unemployment – rises during economic downturns and falls when the economy improves

7 Measuring Unemployment  Number of unemployed people divided by the total labor force multiplied by 100  Unemployment rate – percentage of the nations’ labor force that is unemployed Unemployment rate is an indication of the health of a nation’s economy

8 Full Employment  Natural rate of unemployment – normal rate of unemployment around which the unemployment rate fluctuates (4-6%) Zero unemployment is not an achievable goal because of frictional unemployment  Underemployment – working at a job for which one is overqualified, or working part-time when full-time work is desired  Discouraged workers – a person who wants a job, but has given up looking (do not count against unemployment rate)

9 The breakdown of the population in 2007 The Bureau of Labor Statistics divides the adult population into three categories: employed, unemployed, and not in the labor force.

10 Unemployment Insurance  Unemployment insurance - government program to protect workers’ incomes when they become unemployed Eligible – people who are laid off through no fault of their own Ineligible – people who quit, were fired for cause, or just entered the labor force Unemployment Insurance can increase frictional unemployment by taking away incentive to find a job ○ 1985 case study in Illinois showed people not receiving checks were unemployed by a 7% shorter period

11 Unemployment Insurance

12 Review - Unemployment Statistics The country of Ecoland has collected the following information: Population 240,000 Employed 180,000 Unemployed 30,000 Determine the following: 1. Labor Force = __________ + _______ = _____________ 2. Unemployment rate = (_________/_________) X 100% = ______ 3. Labor-force participation rate = (_______/_______) X 100% = _______ 30, , % 210, , % 180,000 30, ,000

13 Types of Unemployment Chart UnemployedType of Unemployment 1. A computer programmer is laid off because of a recession. 2. A literary editor leaves her job in New York to look for a job in San Francisco. 3. An unemployed college graduate is looking for his first job. 4. Advances in technology make the assembly-line worker’s job obsolete. 5. Slumping sales lead to a cashier being laid off. 6. Workers are laid off when the local manufacturing plant closes because of a downturn in the economy. 7. A high school graduate lacks the skills necessary for a particular job. 8. Summer ends and local teens lose their jobs. Cyclical Unemployment Frictional Structural Cyclical Structural Seasonal

14 Flow Chart Types of Unemployment, pgs FrictionalSeasonalStructuralCyclical Types of Unemployment Your Example 1. Your Example 1. Your Example 1. Your Example 1. Book Examples Book Examples Book Examples Book Examples 1. 2.

15 Flow Chart Types of Unemployment, pgs FrictionalSeasonalStructuralCyclical Types of Unemployment Your Example 1. Your Example 1. Your Example 1. Your Example 1. Book Examples 1. Hannah left her job at a large hospital to look for a job at a smaller health clinic. 2. Jorge graduated from law school, he is currently interviewing for jobs. 3. Liz left the labor force to take care of an aging parent, she has returned to the labor force. Book Examples Book Examples Book Examples 1. 2.

16 Flow Chart Types of Unemployment, pgs FrictionalSeasonalStructuralCyclical Types of Unemployment Your Example 1. Your Example 1. Your Example 1. Your Example 1. Book Examples 1. Hannah left her job at a large hospital to look for a job at a smaller health clinic. 2. Jorge graduated from law school, he is currently interviewing for jobs. 3. Liz left the labor force to take care of an aging parent, she has returned to the labor force. Book Examples 1. Brick mason lays off his workers every winter, hires every spring. 2. School ends, students find a summer job. Begins, leave the job for school. 3. Migrant farmers lose their job during the winter, droughts or too much rain. Book Examples Book Examples 1. 2.

17 Flow Chart Types of Unemployment, pgs FrictionalSeasonalStructuralCyclical Types of Unemployment Your Example 1. Your Example 1. Your Example 1. Your Example 1. Book Examples 1. Hannah left her job at a large hospital to look for a job at a smaller health clinic. 2. Jorge graduated from law school, he is currently interviewing for jobs. 3. Liz left the labor force to take care of an aging parent, she has returned to the labor force. Book Examples 1. Gregory lays off his workers every winter, hires every spring. 2. School ends, students find a summer job. Begins, leave the job for school. 3. Migrant farmers lose their job during the winter, droughts or too much rain. Book Examples Book Examples Book Examples 1. New technology puts people out of work, CD’s put out the workers in the phonographic market. 2. Discovery of new resources, oil supplanted whale-oil as an energy source. 3. Changes in consumer demand, people favor one item over another. 4. Globalization, GM moves their factory, people lose their jobs. 5. Lack of Education can affect the marketability of an individual looking for a job.

18 Flow Chart Types of Unemployment, pgs FrictionalSeasonalStructuralCyclical Types of Unemployment Your Example 1. Your Example 1. Your Example 1. Your Example 1. Book Examples 1. Hannah left her job at a large hospital to look for a job at a smaller health clinic. 2. Jorge graduated from law school, he is currently interviewing for jobs. 3. Liz left the labor force to take care of an aging parent, she has returned to the labor force. Book Examples 1. Gregory lays off his workers every winter, hires every spring. 2. School ends, students find a summer job. Begins, leave the job for school. 3. Migrant farmers lose their job during the winter, droughts or too much rain. Book Examples 1. New technology puts people out of work, CD’s put out the workers in the phonographic market. 2. Discovery of new resources, oil supplanted whale-oil as an energy source. 3. Changes in consumer demand, people favor one item over another. 4. Globalization, GM moves their factory, people lose their jobs. 5. Lack of Education can affect the marketability of an individual looking for a job. Book Examples 1. Workers in the steel industry are affected by the downturn in the economy. 2. During the great depression the unemployment rate spiked to 25%.

19 Section 2 - Inflation  Inflation – a general increase in prices  Inflation rate – percentage change in the price level from the previous period or base year.  Normal rate is about 3%  Hyperinflation – inflation that is out of control  Deflation – sustained drop in the price levels In 2009, the Consumer Price Index fell for the first time since 1955  Purchasing power – the ability to purchase goods and services  Fixed Income – income that does not increase when prices go up

20 Causes of Inflation  Quantity Theory – too much money in the economy causes inflation  Demand-Pull Theory – inflation occurs when demand for goods and services exceeds existing supplies  Cost – Push Theory – inflation occurs when producers raise prices in order to meet increasing costs of inputs

21 Inflation Chart ScenarioTerm 1. Prices for meat, poultry and pork increase as a result of an increase in the price for corn. 2. Prices rise in the United States as a result of successive stimulus packages 3. Real Estate prices in the mid-2000’s increased exponentially as a result of significant increases in demand. 4. Zimbabwe experienced out of control price increases in their economy. 5. In 2009 the general price level decreased. 6. A teacher makes $60,000 dollars per year; paid once per month. 7. Prices go up and a person on a fixed income loses the ability to consume at the same rate.

22 Inflation Chart ScenarioTerm 1. Prices for meat, poultry and pork increase as a result of an increase in the price for corn. Cost-Push Theory 2. Prices rise in the United States as a result of successive stimulus packages 3. Real Estate prices in the mid-2000’s increased exponentially as a result of significant increases in demand. 4. Zimbabwe experienced out of control price increases in their economy. 5. In 2009 the general price level decreased. 6. A teacher makes $60,000 dollars per year; paid once per month. 7. Prices go up and a person on a fixed income loses the ability to consume at the same rate.

23 Inflation Chart ScenarioTerm 1. Prices for meat, poultry and pork increase as a result of an increase in the price for corn. Cost-Push Theory 2. Prices rise in the United States as a result of successive stimulus packages Quantity Theory 3. Real Estate prices in the mid-2000’s increased exponentially as a result of significant increases in demand. 4. Zimbabwe experienced out of control price increases in their economy. 5. In 2009 the general price level decreased. 6. A teacher makes $60,000 dollars per year; paid once per month. 7. Prices go up and a person on a fixed income loses the ability to consume at the same rate.

24 Inflation Chart ScenarioTerm 1. Prices for meat, poultry and pork increase as a result of an increase in the price for corn. Cost-Push Theory 2. Prices rise in the United States as a result of successive stimulus packages Quantity Theory 3. Real Estate prices in the mid-2000’s increased exponentially as a result of significant increases in demand. Demand-Pull Theory 4. Zimbabwe experienced out of control price increases in their economy. 5. In 2009 the general price level decreased. 6. A teacher makes $60,000 dollars per year; paid once per month. 7. Prices go up and a person on a fixed income loses the ability to consume at the same rate.

25 Inflation Chart ScenarioTerm 1. Prices for meat, poultry and pork increase as a result of an increase in the price for corn. Cost-Push Theory 2. Prices rise in the United States as a result of successive stimulus packages Quantity Theory 3. Real Estate prices in the mid-2000’s increased exponentially as a result of significant increases in demand. Demand-Pull Theory 4. Zimbabwe experienced out of control price increases in their economy. Hyperinflation 5. In 2009 the general price level decreased. 6. A teacher makes $60,000 dollars per year; paid once per month. 7. Prices go up and a person on a fixed income loses the ability to consume at the same rate.

26 Inflation Chart ScenarioTerm 1. Prices for meat, poultry and pork increase as a result of an increase in the price for corn. Cost-Push Theory 2. Prices rise in the United States as a result of successive stimulus packages Quantity Theory 3. Real Estate prices in the mid-2000’s increased exponentially as a result of significant increases in demand. Demand-Pull Theory 4. Zimbabwe experienced out of control price increases in their economy. Hyperinflation 5. In 2009 the general price level decreased.Deflation 6. A teacher makes $60,000 dollars per year; paid once per month. 7. Prices go up and a person on a fixed income loses the ability to consume at the same rate.

27 Inflation Chart ScenarioTerm 1. Prices for meat, poultry and pork increase as a result of an increase in the price for corn. Cost-Push Theory 2. Prices rise in the United States as a result of successive stimulus packages Quantity Theory 3. Real Estate prices in the mid-2000’s increased exponentially as a result of significant increases in demand. Demand-Pull Theory 4. Zimbabwe experienced out of control price increases in their economy. Hyperinflation 5. In 2009 the general price level decreased.Deflation 6. A teacher makes $60,000 dollars per year; paid once per month. Fixed Income 7. Prices go up and a person on a fixed income loses the ability to consume at the same rate.

28 Inflation Chart ScenarioTerm 1. Prices for meat, poultry and pork increase as a result of an increase in the price for corn. Cost-Push Theory 2. Prices rise in the United States as a result of successive stimulus packages Quantity Theory 3. Real Estate prices in the mid-2000’s increased exponentially as a result of significant increases in demand. Demand-Pull Theory 4. Zimbabwe experienced out of control price increases in their economy. Hyperinflation 5. In 2009 the general price level decreased.Deflation 6. A teacher makes $60,000 dollars per year; paid once per month. Fixed Income 7. Prices go up and a person on a fixed income loses the ability to consume at the same rate. Purchasing Power

29 Consumer Price Index  Consumer Price Index – a measure of the overall cost of goods and services bought by the typical urban consumer  Computed each month by the Bureau of Labor Statistics (BLS), part of the Department of Labor  Market Basket – a metaphorical object to represent a collection of goods and services Derived of more than 200 sub-categories, arranged into eight major groups Weighted based on the importance of an item to the consumer

30  Price Index – shows how the average price of a standard group of goods changes over time  Cost of living - The average cost of the basic necessities of life, such as food, shelter, and clothing.

31 1.FOOD AND BEVERAGES (breakfast cereal, milk, coffee, chicken, wine, full service meals, snacks) 2.HOUSING (rent of primary residence, owners' equivalent rent, fuel oil, bedroom furniture) 3.APPAREL (men's shirts and sweaters, women's dresses, jewelry) 4.TRANSPORTATION (new vehicles, airline fares, gasoline, motor vehicle insurance) 5.MEDICAL CARE (prescription drugs and medical supplies, physicians' services, eyeglasses and eye care, hospital services) 6.RECREATION (televisions, toys, pets and pet products, sports equipment, admissions); 7.EDUCATION AND COMMUNICATION (college tuition, postage, telephone services, computer software and accessories); 8.OTHER GOODS AND SERVICES (tobacco and smoking products, haircuts and other personal services, funeral expenses). Consumer Price Index Market Basket for Products 2008 – $

32 The typical basket of goods and services This figure shows how the typical urban consumer divides spending among various categories of goods and services. The Bureau of Labor Statistics calls each percentage the “relative importance” of the category.

33 CPI = Price of basket of goods and services in current year X 100 Price of basket in base year period Base Period is between 1982 – – $ Market Basket for Products 2008 – $ /1792 = X100 = CPI = Prices have inflated by 115.3% from base period ( ) to 2008

34 Inflation = CPI in year 2 – CPI in year 1 X 100 CPI in year – – – = / = X 100 = 3.84% Prices have inflated by 3.84% from 2007 to 2008

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36 Determining CPI YearCPI Conversion /1792 = x 100 =

37 Determining CPI YearCPI Conversion /1792 = x 100 = /1792 = x 100 =

38 Determining CPI YearCPI Conversion /1792 = x 100 = /1792 = x 100 = /1792 = x 100 = /1792 = x 100 = /1792 = x 100 = /1792 = x 100 = /1792 = x 100 = /1792 = x 100 = /1792 = x 100 = 172.2

39 Determining the Inflation Rate YearInflation Rate = 5.6/166.6 =.0336 x 100 = 3.4%

40 Determining the Inflation Rate YearInflation Rate = 5.6/166.6 =.0336 x 100 = 3.4% = 3.6/163 =.022 x 100 = 2.2%

41 Determining the Inflation Rate YearInflation Rate = 5.6/166.6 =.0336 x 100 = 3.4% = 3.6/163 =.022 x 100 = 2.2% – = 2.5/160.5 =.0015 x 100 = 1.6%

42 Determining the Inflation Rate YearInflation Rate = 5.6/166.6 =.0336 x 100 = 3.4% = 3.6/163 =.022 x 100 = 2.2% – = 2.5/160.5 =.0015 x 100 = 1.6% – = 3.6/156.9 =.0229 x 100 = 2.3% – = 4.5/152.4 =.029 x 100 = 2.9% – = 4.2/148.2 =.028 x 100 = – = 3.7/144.5 =.026 x 100 = 2.6% – = 4.2/140.3 =.029 x 100 = 2.9% – = 4.1/136.2 =.03 x 100 = 3.0% – = 5.5/130.7 =.04 x 100 = 4.2%

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44 Market Basket to CPI Step 1: Survey consumers to determine a fixed basket of goods Basket = 6 Guns, 3 Butter Step 2: Find the price of each good in each year YearPrice of gunsPrice of butter $2 4 6 $4 5 7 Step 3: Compute the cost of the basket of goods in each year $________ per Gun ×________ total Guns = ________ $________ per Gun ×________ total Guns = _______ $________ per Gun ×________ total Guns = _______ $_____ per Butter ×________ total Butter =________ $______ per Butter ×_______ total Butter =_______ $______ per Butter ×________ total Butter =________ Total Market Value for Guns _____________ +Total Market Value for Butter_____________ = ______________ Total Market Value for Guns _____________ +Total Market Value for Butter_____________ = ______________ Total Market Value for Guns _____________ +Total Market Value for Butter_____________ = ______________ Step 4: Choose one year as a base year (2005) and compute the CPI in each year CPI = $___________ (2005)/___________(2005) = __________ X 100 = __________ CPI = $____________ (2006)/___________(2005) = ___________ X 100 = ________ CPI = $___________ (2007)/___________(2005) = ___________ X 100 = _________ Step 5: Use the consumer price index to compute the inflation rate from previous year

45 Market Basket to CPI Step 1: Survey consumers to determine a fixed basket of goods Basket = 6 Guns, 3 Butter Step 2: Find the price of each good in each year YearPrice of gunsPrice of butter $2 4 6 $4 5 7 Step 3: Compute the cost of the basket of goods in each year $___2_____ per Gun ×___6_____ total Guns = __12______ $________ per Gun ×________ total Guns = _______ $________ per Gun ×________ total Guns = _______ $__4____ per Butter ×___3_____ total Butter =___12_____ $______ per Butter ×_______ total Butter =_______ $______ per Butter ×________ total Butter =________ Total Market Value for Guns _____________ +Total Market Value for Butter_____________ = ______________ Total Market Value for Guns _____________ +Total Market Value for Butter_____________ = ______________ Total Market Value for Guns _____________ +Total Market Value for Butter_____________ = ______________ Step 4: Choose one year as a base year (2005) and compute the CPI in each year CPI = $___________ (2005)/___________(2005) = __________ X 100 = __________ CPI = $____________ (2006)/___________(2005) = ___________ X 100 = ________ CPI = $___________ (2007)/___________(2005) = ___________ X 100 = _________ Step 5: Use the consumer price index to compute the inflation rate from previous year

46 Market Basket to CPI Step 1: Survey consumers to determine a fixed basket of goods Basket = 6 Guns, 3 Butter Step 2: Find the price of each good in each year YearPrice of gunsPrice of butter $2 4 6 $4 5 7 Step 3: Compute the cost of the basket of goods in each year $___2_____ per Gun ×___6_____ total Guns = __12______ $________ per Gun ×________ total Guns = _______ $________ per Gun ×________ total Guns = _______ $__4____ per Butter ×___3_____ total Butter =___12_____ $______ per Butter ×_______ total Butter =_______ $______ per Butter ×________ total Butter =________ Total Market Value for Guns _____12________ +Total Market Value for Butter_____12________ = _____24_________ Total Market Value for Guns _____________ +Total Market Value for Butter_____________ = ______________ Total Market Value for Guns _____________ +Total Market Value for Butter_____________ = ______________ Step 4: Choose one year as a base year (2005) and compute the CPI in each year CPI = $___________ (2005)/___________(2005) = __________ X 100 = __________ CPI = $____________ (2006)/___________(2005) = ___________ X 100 = ________ CPI = $___________ (2007)/___________(2005) = ___________ X 100 = _________ Step 5: Use the consumer price index to compute the inflation rate from previous year

47 Market Basket to CPI Step 1: Survey consumers to determine a fixed basket of goods Basket = 6 Guns, 3 Butter Step 2: Find the price of each good in each year YearPrice of gunsPrice of butter $2 4 6 $4 5 7 Step 3: Compute the cost of the basket of goods in each year $___2_____ per Gun ×___6_____ total Guns = __12______ $________ per Gun ×________ total Guns = _______ $________ per Gun ×________ total Guns = _______ $__4____ per Butter ×___3_____ total Butter =___12_____ $______ per Butter ×_______ total Butter =_______ $______ per Butter ×________ total Butter =________ Total Market Value for Guns _____12________ +Total Market Value for Butter_____12________ = _____24_________ Total Market Value for Guns _____________ +Total Market Value for Butter_____________ = ______________ Total Market Value for Guns _____________ +Total Market Value for Butter_____________ = ______________ Step 4: Choose one year as a base year (2005) and compute the CPI in each year CPI = $_____24_______ (2005)/_____24______(2005) = _____1______ X 100 = ____100_____ CPI = $____________ (2006)/___________(2005) = ___________ X 100 = ________ CPI = $___________ (2007)/___________(2005) = ___________ X 100 = _________ Step 5: Use the consumer price index to compute the inflation rate from previous year

48 Market Basket to CPI Step 1: Survey consumers to determine a fixed basket of goods Basket = 6 Guns, 3 Butter Step 2: Find the price of each good in each year YearPrice of gunsPrice of butter $2 4 6 $4 5 7 Step 3: Compute the cost of the basket of goods in each year $___2_____ per Gun ×___6_____ total Guns = __12______ $___4_____ per Gun ×___6_____ total Guns = __24_____ $________ per Gun ×________ total Guns = _______ $__4____ per Butter ×___3_____ total Butter =___12_____ $__5____ per Butter ×___3_____ total Butter =___15____ $______ per Butter ×________ total Butter =________ Total Market Value for Guns _____12________ +Total Market Value for Butter_____12________ = _____24_________ Total Market Value for Guns _____________ +Total Market Value for Butter_____________ = ______________ Total Market Value for Guns _____________ +Total Market Value for Butter____________ = ______________ Step 4: Choose one year as a base year (2005) and compute the CPI in each year CPI = $_____24_______ (2005)/_____24______(2005) = _____1______ X 100 = ____100_______ CPI = $____________ (2006)/___________(2005) = ___________ X 100 = ________ CPI = $___________ (2007)/___________(2005) = ___________ X 100 = _________ Step 5: Use the consumer price index to compute the inflation rate from previous year

49 Market Basket to CPI Step 1: Survey consumers to determine a fixed basket of goods Basket = 6 Guns, 3 Butter Step 2: Find the price of each good in each year YearPrice of gunsPrice of butter $2 4 6 $4 5 7 Step 3: Compute the cost of the basket of goods in each year $___2_____ per Gun ×___6_____ total Guns = __12______ $___4_____ per Gun ×___6_____ total Guns = __24_____ $________ per Gun ×________ total Guns = _______ $__4____ per Butter ×___3_____ total Butter =___12_____ $__5____ per Butter ×___3_____ total Butter =___15____ $______ per Butter ×________ total Butter =________ Total Market Value for Guns _____12________ +Total Market Value for Butter_____12________ = _____24_________ Total Market Value for Guns _____24________ +Total Market Value for Butter_____15________ = _____39_________ Total Market Value for Guns _____________ +Total Market Value for Butter____________ = ______________ Step 4: Choose one year as a base year (2005) and compute the CPI in each year CPI = $_____24_______ (2005)/_____24______(2005) = _____1______ X 100 = ____100_______ CPI = $____________ (2006)/___________(2005) = ___________ X 100 = ________ CPI = $___________ (2007)/___________(2005) = ___________ X 100 = _________ Step 5: Use the consumer price index to compute the inflation rate from previous year

50 Market Basket to CPI Step 1: Survey consumers to determine a fixed basket of goods Basket = 6 Guns, 3 Butter Step 2: Find the price of each good in each year YearPrice of gunsPrice of butter $2 4 6 $4 5 7 Step 3: Compute the cost of the basket of goods in each year $___2_____ per Gun ×___6_____ total Guns = __12______ $___4_____ per Gun ×___6_____ total Guns = __24_____ $________ per Gun ×________ total Guns = _______ $__4____ per Butter ×___3_____ total Butter =___12_____ $__5____ per Butter ×___3_____ total Butter =___15____ $______ per Butter ×________ total Butter =________ Total Market Value for Guns _____12________ +Total Market Value for Butter_____12________ = _____24_________ Total Market Value for Guns _____24________ +Total Market Value for Butter_____15________ = _____39_________ Total Market Value for Guns _____________ +Total Market Value for Butter____________ = ______________ Step 4: Choose one year as a base year (2005) and compute the CPI in each year CPI = $_____24_______ (2005)/_____24______(2005) = _____1______ X 100 = ____100_______ CPI = $_____39_______ (2006)/____24_______(2005) = ___1.625________ X 100 = __162.5______ CPI = $___________ (2007)/___________(2005) = ___________ X 100 = _________ Step 5: Use the consumer price index to compute the inflation rate from previous year

51 Market Basket to CPI Step 1: Survey consumers to determine a fixed basket of goods Basket = 6 Guns, 3 Butter Step 2: Find the price of each good in each year YearPrice of gunsPrice of butter $2 4 6 $4 5 7 Step 3: Compute the cost of the basket of goods in each year $___2_____ per Gun ×___6_____ total Guns = __12______ $___4_____ per Gun ×___6_____ total Guns = __24_____ $___6_____ per Gun ×___6_____ total Guns = __36_____ $__4____ per Butter ×___3_____ total Butter =___12_____ $__5____ per Butter ×___3_____ total Butter =___15____ $__7____ per Butter ×___3_____ total Butter =___21_____ Total Market Value for Guns _____12________ +Total Market Value for Butter_____12________ = _____24_________ Total Market Value for Guns _____24________ +Total Market Value for Butter_____15________ = _____39_________ Total Market Value for Guns _____36________ +Total Market Value for Butter_____21________ = _____57_________ Step 4: Choose one year as a base year (2005) and compute the CPI in each year CPI = $_____24_______ (2005)/_____24______(2005) = _____1______ X 100 = ____100_______ CPI = $_____39_______ (2006)/____24_______(2005) = ___1.625________ X 100 = __162.5______ CPI = $_____57______ (2007)/____24_______(2005) = ___2.375________ X 100 = ____237.5_____ Step 5: Use the consumer price index to compute the inflation rate from previous year

52 Market Basket to CPI Step 1: Survey consumers to determine a fixed basket of goods Basket = 6 Guns, 3 Butter Step 2: Find the price of each good in each year YearPrice of gunsPrice of butter $2 4 6 $4 5 7 Step 3: Compute the cost of the basket of goods in each year $___2_____ per Gun ×___6_____ total Guns = __12______ $___4_____ per Gun ×___6_____ total Guns = __24_____ $___6_____ per Gun ×___6_____ total Guns = __36_____ $__4____ per Butter ×___3_____ total Butter =___12_____ $__5____ per Butter ×___3_____ total Butter =___15____ $__7____ per Butter ×___3_____ total Butter =___21_____ Total Market Value for Guns _____12________ +Total Market Value for Butter_____12________ = _____24_________ Total Market Value for Guns _____24________ +Total Market Value for Butter_____15________ = _____39_________ Total Market Value for Guns _____36________ +Total Market Value for Butter_____24________ = _____57_________ Step 4: Choose one year as a base year (2005) and compute the CPI in each year CPI = $_____24_______ (2005)/_____24______(2005) = _____1______ X 100 = ____100_______ CPI = $_____39_______ (2006)/____24_______(2005) = ___1.625________ X 100 = __162.5______ CPI = $_____57______ (2007)/____24_______(2005) = ___2.375________ X 100 = ____237.5_____ Step 5: Use the consumer price index to compute the inflation rate from previous year (162.5 – 100) / 100 × 100 =

53 Market Basket to CPI Step 1: Survey consumers to determine a fixed basket of goods Basket = 6 Guns, 3 Butter Step 2: Find the price of each good in each year YearPrice of gunsPrice of butter $2 4 6 $4 5 7 Step 3: Compute the cost of the basket of goods in each year $___2_____ per Gun ×___6_____ total Guns = __12______ $___4_____ per Gun ×___6_____ total Guns = __24_____ $___6_____ per Gun ×___6_____ total Guns = __36_____ $__4____ per Butter ×___3_____ total Butter =___12_____ $__5____ per Butter ×___3_____ total Butter =___15____ $__7____ per Butter ×___3_____ total Butter =___21_____ Total Market Value for Guns _____12________ +Total Market Value for Butter_____12________ = _____24_________ Total Market Value for Guns _____24________ +Total Market Value for Butter_____15________ = _____39_________ Total Market Value for Guns _____36________ +Total Market Value for Butter_____24________ = _____57_________ Step 4: Choose one year as a base year (2005) and compute the CPI in each year CPI = $_____24_______ (2005)/_____24______(2005) = _____1______ X 100 = ____100_______ CPI = $_____39_______ (2006)/____24_______(2005) = ___1.625________ X 100 = __162.5______ CPI = $_____57______ (2007)/____24_______(2005) = ___2.375________ X 100 = ____237.5_____ Step 5: Use the consumer price index to compute the inflation rate from previous year (162.5 – 100) / 100 × 100 = 62.5%

54 Market Basket to CPI Step 1: Survey consumers to determine a fixed basket of goods Basket = 6 Guns, 3 Butter Step 2: Find the price of each good in each year YearPrice of gunsPrice of butter $2 4 6 $4 5 7 Step 3: Compute the cost of the basket of goods in each year $___2_____ per Gun ×___6_____ total Guns = __12______ $___4_____ per Gun ×___6_____ total Guns = __24_____ $___6_____ per Gun ×___6_____ total Guns = __36_____ $__4____ per Butter ×___3_____ total Butter =___12_____ $__5____ per Butter ×___3_____ total Butter =___15____ $__7____ per Butter ×___3_____ total Butter =___21_____ Total Market Value for Guns _____12________ +Total Market Value for Butter_____12________ = _____24_________ Total Market Value for Guns _____24________ +Total Market Value for Butter_____15________ = _____39_________ Total Market Value for Guns _____36________ +Total Market Value for Butter_____24________ = _____57_________ Step 4: Choose one year as a base year (2005) and compute the CPI in each year CPI = $_____24_______ (2005)/_____24______(2005) = _____1______ X 100 = ____100_______ CPI = $_____39_______ (2006)/____24_______(2005) = ___1.625________ X 100 = __162.5______ CPI = $_____57______ (2007)/____24_______(2005) = ___2.375________ X 100 = ____237.5_____ Step 5: Use the consumer price index to compute the inflation rate from previous year (162.5 – 100) / 100 × 100 = 62.5% (237.5 – 162.5) / × 100 = 46.15%

55 Section 3 - Poverty  Poverty - lack of basic human needs, such as clean water, nutrition, health care, education, clothing and shelter, because of the inability to afford them  Poverty threshold - is an income level below that which is needed to support families or households.  Poverty rate – percentage of people who live below the poverty threshold (2010 – 14.3%)  Poor – low income working poor, unemployed, homeless, children

56 Antipoverty Policies  1996 – President Clinton signed welfare reform  Block Grants – lump sums of money to the states to assist poor, 5 year limit to receipt of benefits, show employment within 2 years  Workfare – program requiring work in exchange for temporary assistance  Enterprise zones – areas where companies can gain tax benefits from local, state and federal government Revitalization projects in rundown areas  Employment assistance – job training programs to deal with unskilled workers; minimum wage laws

57 Section 3 SQ3R – Poverty pg Causes of Poverty 2. Lack of Education 3. Location 4. Racial and Gender Discrimination 5. Economic Shifts 6. Shifts in Family Structure

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59 Section 3 SQ3R – Poverty pg Causes of Poverty Unemployment, health problems, disabled, working poor, etc. 2. Lack of Education High school dropout – make just above the poverty threshold, about 1/3 more than dropouts, college graduates made about 3 times as much as hs grad. 3. Location Inner cities and rural areas, poor transportation, earn less money, 4. Racial and Gender Discrimination White workers earn more than minority workers, men more than women. 5. Economic Shifts Lack of education – last hired and first fired. 6. Shifts in Family Structure Divorce rate has increased unmarried parents, child-poverty.

60 Binder Check Due Friday Flow Chart Unemployment 2. SQ3R Section 3 Poverty 3. Market Basket to CPI Worksheet 4. Daily Ten Questions 5. Ch. 13 Study Guide 6. Ch. 13 Crossword Puzzle 7. Ch. 13 Notes 8. Vocab Terms Ch. 13

61 VIS Terms 1. Structural 2. Cyclical 3. Frictional 4. Seasonal 5. Unemployment Rate 6. Underemployment 7. Discouraged Worker 8. Consumer Price Index 9. Market Basket 10. Inflation 11. Inflation rate 12. Hyperinflation 13. Deflation 14. Poverty Threshold

62 Formulas for the Test Number of people unemployed X100 labor force Price of basket of goods and services in current year X 100 Price of basket in base year period CPI in year 2 – CPI in year 1 X 100 CPI in year 1


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