2 Economic ChallengesThree economic challenges discussed in this chapter:UnemploymentPoverty and Income DistributionInflation
3 Economic Challenges - Unemployment Unemployment has a variety of causes.Some level of unemployment is expected, even when an economy is healthy.Underemployed—work part-time, want full-time or work below skill level
4 Measuring Unemployment The Unemployment RateMeasure of unemploymentIncludes those over 16 who are not working, are able to work and actively seeking workDoes not include military, those in prison, those who are not seeking a job.
5 Measuring Unemployment Full EmploymentAlways some degree of unemployment:people relocate; look for better job; can’t find appropriate jobUnemployment rate of 4 to 6 percent considered full employment in U.S.other rates in countries with different labor markets, economic policies
6 Types of Unemployment Type 1: Frictional Unemployment People “in between” jobs.Includes:Childrearing parents returning to worknew college graduates looking for first jobexperienced workers who want to switch jobsReflects workers’ freedom to find best job for them at highest wage
7 Types of Unemployment Type 2: Seasonal Unemployment Demand for some jobs changes dramatically from season to seasonconstruction work falls off in wintertourism peaks at certain times of year; varies by regionmigrant farm work drops off in winter; migrant families suffer
8 Types of Unemployment Type 3: Structural Unemployment As businesses become more efficient, require fewer workersnew technologies replace workers or require them to retrainnew industries requiring specialized education do not employ unskilledchange in consumer demand can shift type of workers neededoffshore outsourcing sometimes leaves people out of work
9 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
10 Section 2: Poverty and Income Distribution What Is Poverty?The Poverty ThresholdPeople considered in poverty if income falls below poverty thresholdAlso called the poverty lineCalculated based on costs of nutritious food, other necessities
11 The 2009 Poverty Guidelines for the 48 Contiguous States and the District of Columbia Number in FamilyPoverty Line1$10,8302$14,5703$18,3104$22,050
12 What Is Poverty? The Poverty Rate Poverty rate—percent of people in households below poverty thresholdbased on population as a wholePoverty does not hit all sectors of society equally.Most at risk:Children, minorities; inner-city, rural, and single–mother families
13 Factors Affecting Poverty Education—the higher the level of education, the higher the incomeDiscrimination against minorities, womensometimes face wage discrimination, occupational segregationDemographic trends—single-parent families have more economic problemsChange from manufacturing to service jobs has resulted in lower wages for low-skilled workers
14 Income DistributionIncome distribution—how income is divided among people in a nationIncome inequality—unequal distribution of income; some always exists
15 Income Distribution 112,363,000 Households below $250,000 $0 $50,000 Eachequals 500,000 households112,363,000Households below $250,000$0$50,000$100,000$150,000$200,000$250,000
18 Assistance for people in poverty Food stamp program gives card, government deposits funds in accountcard can be used only to buy food at grocery storesMedicaid offers health care; funded by federal and state governmentsEarned-income tax credit—refunds taxes deducted from paychecksmoney usually spent in own communities, helping boost their economies
19 General Antipoverty Programs Social Security program pays benefits to retirees, survivors, disabledMedicare is government health insurance for seniorsUnemployment insurance helps laid-off workers while looking for job
20 How Difficult is it to Live at the Poverty Level? You are head of a family of four with an income at the poverty level of $20,000.Housing: $5,400Utilities: $2,400Transportation: $5,000Food: $4,200Health Care: $2,200Child Care: $2,400BALANCE:How much Money do you have now?
21 Is it possible to live on $1 a day? Life on $1 a DayIs it possible to live on $1 a day?
22 Life on $1 a Day What were you able to afford? What was difficult about the task?What did you really need that you couldn’t afford?How would you care for and feed your family with these budget limitations? What would you do?
23 Section 3: Inflation Definition of inflation: A sustained rise in the general price level, or a sustained fall in the purchasing power of money.
24 What Is the Impact of Inflation? Effect 1: Decreasing Value of the DollarRising consumer price index represents declining value of the dollarPeople on a fixed income are especially vulnerableeach dollar they have buys less every yearInflation helps people who borrow at a fixed rate of interest
25 What Is the Impact of Inflation? Effect 2: Increasing Interest RatesLenders raise interest rates to ensure profit on loansBusinesses avoid borrowing to expand or make capital improvementsConsumers less likely to finance high- priced itemsMonthly credit card payments go up as rates rise
26 What Is the Impact of Inflation? Effect 3: Decreasing Real Returns on SavingsInterest on savings tends to increase during inflationary timesAny interest you earn on investments is worth less than it was before
27 The Effects of Inflation in the 1970s BackgroundIn 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.What’s the IssueHow did inflation affect people and businesses in the 1970s?Thinking EconomicallyName 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.