Economic Challenges Three economic challenges discussed in this chapter: Unemployment Poverty and Income Distribution Inflation
Economic Challenges - Unemployment Unemployment has a variety of causes. Some level of unemployment is expected, even when an economy is healthy. Underemployedwork part-time, want full-time or work below skill level
Measuring Unemployment The Unemployment Rate Measure of unemployment Includes those over 16 who are not working, are able to work and actively seeking work Does not include military, those in prison, those who are not seeking a job.
Measuring Unemployment Full Employment 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
Types of Unemployment Type 1: Frictional Unemployment People in between jobs. 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
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
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
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
Section 2: Poverty 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
The 2009 Poverty Guidelines for the 48 Contiguous States and the District of Columbia Number in FamilyPoverty Line 1$10,830 2$14,570 3$18,310 4$22,050
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 single–mother families
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
Income Distribution Income distributionhow income is divided among people in a nation Income inequalityunequal distribution of income; some always exists
Income Distribution $0$150,000$100,000$50,000$250,000$200, ,363,000Households below $250,000 Eachequals 500,000 households
Assistance for people in poverty 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
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
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: $5,400 Utilities: $2,400 Transportation: $5,000 Food: $4,200 Health Care: $2,200 Child Care: $2,400 BALANCE: How much Money do you have now?
Life on $1 a Day Is it possible to live on $1 a day?
Life on $1 a Day What were you able to afford? What was difficult about the task? What did you really need that you couldnt afford? How would you care for and feed your family with these budget limitations? What would you do?
Section 3: Inflation Definition of inflation: A sustained rise in the general price level, or a sustained fall in the purchasing power of money.
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
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
What Is the Impact of Inflation? Effect 3: Decreasing Real Returns on Savings Interest on savings tends to increase during inflationary times Any interest you earn on investments is worth less than it was before
The Effects of Inflation in the 1970s Background In 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. Whats the Issue How did inflation affect people and businesses in the 1970s? Thinking Economically Name 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.