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Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are.

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Presentation on theme: "Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are."— Presentation transcript:

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2 Chapter 13: Economic Challenges

3 Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are taking time to find another job People are taking time to find another job Dissatisfied with current job Dissatisfied with current job Time off for education, or personal reasons Time off for education, or personal reasons

4 Unemployment 4 Types of Unemployment 4 Types of Unemployment Seasonal Unemployment Seasonal Unemployment Industry regularly shuts down during a particular season Industry regularly shuts down during a particular season Ex. – Farm laborers travel across the country to work seasonal crops Ex. – Farm laborers travel across the country to work seasonal crops Ex. - Tax preparation jobs Ex. - Tax preparation jobs

5 Unemployment 4 Types of Unemployment 4 Types of Unemployment Structural Unemployment Structural Unemployment Structure of the economy changes, changing types of jobs available Structure of the economy changes, changing types of jobs available New technologies (farm jobs disappear, new factory jobs) New technologies (farm jobs disappear, new factory jobs) Consumer demand changes Consumer demand changes Globalization – companies relocate jobs to other countries Globalization – companies relocate jobs to other countries

6 Unemployment 4 Types of Unemployment 4 Types of Unemployment Cyclical Unemployment Cyclical Unemployment Contraction and recession cause loss of jobs Contraction and recession cause loss of jobs Consumers have less money, demand shifts left for most products Consumers have less money, demand shifts left for most products Companies lay off workers to accommodate this decrease Companies lay off workers to accommodate this decrease

7 Unemployment The Unemployment Rate The Unemployment Rate U.S. Bureau of the Census polls 50,000 families to calculate % of Americans who are looking for work, but cannot find a job U.S. Bureau of the Census polls 50,000 families to calculate % of Americans who are looking for work, but cannot find a job # of ppl. unemployed / # of civilians polled # of ppl. unemployed / # of civilians polled

8 Unemployment The Unemployment Rate The Unemployment Rate An unemployment rate of 0% is impossible An unemployment rate of 0% is impossible Full Employment is when there is no cyclical unemployment Full Employment is when there is no cyclical unemployment Economies are considered healthy with an unemployment rate of 4-6% Economies are considered healthy with an unemployment rate of 4-6%

9 Unemployment Problems with using Unemployment Rate as a Measure Problems with using Unemployment Rate as a Measure Does not factor in underemployment – people working in jobs that are beneath their qualifications Does not factor in underemployment – people working in jobs that are beneath their qualifications Ex. – someone with a college degree working part time for $8.00 an hour Ex. – someone with a college degree working part time for $8.00 an hour Does not factor in discouraged workers – people who cant find a job, and are so frustrated that they quit looking Does not factor in discouraged workers – people who cant find a job, and are so frustrated that they quit looking

10 Inflation Inflation is a general increase in prices Inflation is a general increase in prices Movie Ticket in $0.25 Movie Ticket in $0.25 Movie Ticket in $7.50 Movie Ticket in $7.50

11 Inflation Inflation reduces Purchasing Power – the ability of your money to purchase goods and services Inflation reduces Purchasing Power – the ability of your money to purchase goods and services Say you have $3.00, and tacos cost $1.00 each Say you have $3.00, and tacos cost $1.00 each Your money is worth 3 tacos Your money is worth 3 tacos

12 Inflation Inflation reduces Purchasing Power – the ability of your money to purchase goods and services Inflation reduces Purchasing Power – the ability of your money to purchase goods and services If you hold your $3.00 for a few years, and prices inflate to $1.50 for tacos… If you hold your $3.00 for a few years, and prices inflate to $1.50 for tacos… Your money is worth 2 tacos! Your money is worth 2 tacos!

13 Inflation Measuring Inflation Measuring Inflation Level of Prices is calculated by using Price Indexes Level of Prices is calculated by using Price Indexes Consumer Price Index – Bureau of Labor Statistics chooses a market basket of commonly bought goods, and tracks changes in price Consumer Price Index – Bureau of Labor Statistics chooses a market basket of commonly bought goods, and tracks changes in price

14 Inflation CPI = Current Price X 100 CPI = Current Price X 100 Base Period Price Base Period Price

15 Inflation Types of Inflation Types of Inflation Creeping Inflation Creeping Inflation 1-3% per year, causes no problems 1-3% per year, causes no problems Chronic Inflation Chronic Inflation Steady increase each month, takes away incentive to save and invest Steady increase each month, takes away incentive to save and invest Hyperinflation Hyperinflation Out of control, prices could double every month Out of control, prices could double every month Leads to total economic collapse Leads to total economic collapse

16 Inflation Causes of Inflation Causes of Inflation Quantity Theory Quantity Theory Having too much money in the economy causes inflation Having too much money in the economy causes inflation Money supply should be tightly regulated by the government Money supply should be tightly regulated by the government

17 Inflation Causes of Inflation Causes of Inflation Demand-Pull Theory Demand-Pull Theory Demand for goods exceeds existing supplies Demand for goods exceeds existing supplies Businesses, thus, raise their prices Businesses, thus, raise their prices

18 Inflation Causes of Inflation Causes of Inflation Cost-Push Theory Cost-Push Theory As costs go up for producers, they increase their prices As costs go up for producers, they increase their prices Ex. – Employees get a raise, so to cover the additional cost, JC Penny raises its prices by 5% Ex. – Employees get a raise, so to cover the additional cost, JC Penny raises its prices by 5% This trend is called a wage-price spiral This trend is called a wage-price spiral

19 Poverty Poverty can mean different things to different people Poverty can mean different things to different people Defined by the Census Bureau as total income less than the amount needed to satisfy the familys minimum needs Defined by the Census Bureau as total income less than the amount needed to satisfy the familys minimum needs Census Bureau sets the poverty threshold – income level below which family is considered impoverished Census Bureau sets the poverty threshold – income level below which family is considered impoverished

20 Poverty Sample Poverty Thresholds (U.S.) Sample Poverty Thresholds (U.S.) Single parent, one child = $13,020 Single parent, one child = $13,020 Two parents, two children = $19,257 Two parents, two children = $19,257

21 Poverty Poverty Rate - % of a group that falls below the poverty threshold Poverty Rate - % of a group that falls below the poverty threshold U.S. poverty rate is 12.7% (2004) U.S. poverty rate is 12.7% (2004) Poverty Rates help show factors that may contribute to poverty Poverty Rates help show factors that may contribute to poverty

22 Poverty Poverty Rates of Various Population Groups (U.S.) Poverty Rates of Various Population Groups (U.S.) White = 8.6% White = 8.6% Black = 24.7% Black = 24.7% Hispanic = 21.9% Hispanic = 21.9% 2 Parent Households = 5.5% 2 Parent Households = 5.5% Single Parent (Female) Household = 31.6% Single Parent (Female) Household = 31.6%

23 Poverty Causes of Poverty Causes of Poverty Lack of Education Lack of Education Median income for high school dropout = $18,144 Median income for high school dropout = $18,144 Median income for high school grad or GED = $25,360 Median income for high school grad or GED = $25,360 Median income for 4 year college grad = $42,404 Median income for 4 year college grad = $42,404

24 Poverty Causes of Poverty Causes of Poverty Location Location Higher income jobs are located in suburban areas Higher income jobs are located in suburban areas Large numbers of minorities concentrated in inner cities, with no means to commute Large numbers of minorities concentrated in inner cities, with no means to commute

25 Poverty Causes of Poverty Causes of Poverty Racial/Gender Discrimination Racial/Gender Discrimination Women earn $0.75 for every dollar men make Women earn $0.75 for every dollar men make Blacks and Hispanics make $0.60 for every dollar whites make Blacks and Hispanics make $0.60 for every dollar whites make Result of education, location disparities, but also discrimination Result of education, location disparities, but also discrimination

26 Poverty Causes of Poverty Causes of Poverty Economic Shifts Economic Shifts Laborers frequently lose their jobs as new technology replaces them Laborers frequently lose their jobs as new technology replaces them Without education and training, they can become left out of the new workforce Without education and training, they can become left out of the new workforce

27 Poverty Causes of Poverty Causes of Poverty Shifts in Family Structure Shifts in Family Structure Divorce rate continues to rise, and single parent families are much more likely to be impoverished Divorce rate continues to rise, and single parent families are much more likely to be impoverished

28 Income Distribution Income Distribution – how the nations total income is distributed among the population Income Distribution – how the nations total income is distributed among the population Shows gap between rich and poor Shows gap between rich and poor

29 Income Distribution Calculating Income Distribution Calculating Income Distribution Divide the nation into 5 parts based on income (ex. Highest 5 th, next highest 5 th, etc.) Divide the nation into 5 parts based on income (ex. Highest 5 th, next highest 5 th, etc.) Total the incomes of each of the 5 parts Total the incomes of each of the 5 parts Compute % of income each group has Compute % of income each group has

30 Income Distribution Graphing Income Distribution Graphing Income Distribution The Lorenz Curve shows how unequal the distribution is The Lorenz Curve shows how unequal the distribution is

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32 Income Distribution U.S. Income Distribution U.S. Income Distribution Lowest 5 th – 3.6% Lowest 5 th – 3.6% Second 5 th – 8.9% Second 5 th – 8.9% Third 5 th – 15% Third 5 th – 15% Fourth 5 th – 23.2% Fourth 5 th – 23.2% Highest 5 th – 49.4% Highest 5 th – 49.4%

33 Why the Income Gap? Differences in Skill and Effort – Workers with higher skill levels work more hours at more demanding jobs Differences in Skill and Effort – Workers with higher skill levels work more hours at more demanding jobs Inheritances – many Americans inherit large sums of money and invest it, producing more income Inheritances – many Americans inherit large sums of money and invest it, producing more income

34 How to Fix Poverty No for sure solution, but many suggestions No for sure solution, but many suggestions Enterprise Zones – government lifts all taxes in run-down areas, thus encouraging new businesses Enterprise Zones – government lifts all taxes in run-down areas, thus encouraging new businesses

35 How to Fix Poverty No for sure solution, but many suggestions No for sure solution, but many suggestions Employment Assistance – government creates job-training programs for workers who lack skills and institutes a minimum wage Employment Assistance – government creates job-training programs for workers who lack skills and institutes a minimum wage

36 How to Fix Poverty No for sure solution, but many suggestions No for sure solution, but many suggestions Welfare Reform Welfare Reform Welfare – government gives poor people money to cover basic needs, such as food, health care, etc. Welfare – government gives poor people money to cover basic needs, such as food, health care, etc.

37 How to Fix Poverty No for sure solution, but many suggestions No for sure solution, but many suggestions Welfare Reform Welfare Reform Reform is labeled workfare – a program to give temporary assistance until the recipient can find a job Reform is labeled workfare – a program to give temporary assistance until the recipient can find a job


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