Clickers!

1. Select the best definition of the unemployment rate. A) labor force/# unemployed B) # unemployed/ labor force C) civilian labor force/# unemployed D) # unemployed/ civilian labor force

2. Who is unemployed in this list? A) a stay-at-home-mom B) a ten yr-old kid C) a guy who, after looking for a job for 6 months, gave up and moved in with his parents D) a retired person E) None of the above.

3. Population = 100 Employed = 40 Not employed but looking = 10 What is the unemployment rate? A) 10% B) 20% C) 30% D) 40%

4. Population = 50 Employed = 30 Unemployed = 10 What is the unemployment rate? A) 15% B) 25% C) 30% D) 33%

5. Population = 100 Employed = 45 Not employed but looking = 5 What is the unemployment rate? A) 10% B) 11% C) 20% D) 5%

6. Population = 60 Employed = 20 Not employed but looking = 20 What is the unemployment rate? A) 100% B) 66% C) 50% D) 33%

7. How are discouraged workers (people who want to work but have given up looking for a job) counted when measuring the unemployment rate? A) They count as unemployed but not in the labor force. B) They count as unemployed and are part of the labor force. C) They are neither in the labor force nor unemployed.

8. Many people have part-time jobs but want full-time work. When measuring the unemployment rate, these people are counted as A) unemployed & in the labor force. B) unemployed & not in the labor force. C) employed & in the labor force. D) employed but not in the labor force.

9. Population = 100 Working full time = 60 Children = 5 Stay-at-home parents = 5 Prisoners = 10 Not working, but looking for a job = 20 What is the unemployment rate? A) 20% B) 25% C) 30% D) 35%

10. The country of Bagonia has an unemployment rate of 5%. The country of Krakosia has an unemployment rate of 10%. Which of the following must be true? A) Krakosia has a higher rate of inflation. B) Krakosia has twice as many unemployed people as Bagonia. C) Bagonia has a smaller labor force than Krakosia. D) None of these is necessarily true.

2 Countries Bagonia Employed: 95 Unemployed: 5 Labor Force: 100 U.Rate: 5% Krakosia Employed: 9 Unemployed: 1 Labor Force: 10 U.Rate: 10%

Assignment Take a moment to think of a reason why someone might lose their job. Be specific!

Kinds of Unemployment Frictional: between jobs (it’s personal) Structural: changes in consumer tastes or industry operations; skills don’t match jobs (jobs not coming back) Cyclical: changes in business cycle (jobs will come back) Seasonal: changes in weather/seasons

Unemployment Worksheet Follow all directions on handout.

Monetary Policy

Game Plan Interest Rates Money Supply and Interest Rates Bonds Bonds and Money Supply Monetary Policy (The Whole Picture) –The Fed-Bonds-Money Supply-Interest Rates- The Economy

When are we more likely to buy things... when the price is low or when the price is high???

Interest Rates Are the PRICE of money. When do we borrow more money… –when interest rates are low or when they’re high??? LOW, good!

Interest Rates If interest rates are low... and people borrow more money... then more money is spent... and more stuff gets sold and produced.

Picture Time Divide a sheet of notebook paper into six squares. Write “Monetary Policy” at very top. Number them 1-6 (1,2,3 at top, 4,5,6 at bottom). In box 4, draw –a person borrowing money from a bank –OR –a person leaving the bank with borrowed money –OR –a person expressing the intent to borrow money from the bank

In box 5 Draw the person who borrowed the money –as they buy something with that borrowed money. –OR –enjoy the thing they just bought with borrowed money.

BUT More money in circulation can eventually result in… INFLATION.

QUIZ Grab Your Clickers!

Interest rates are the price of A) money B) inflation C) unemployment D) real GDP

Consumers like A) low prices B) high prices

Borrowers like A) low interest rates. B) high interest rates.

Lower interest rates mean A) more money in circulation. B) less money in circulation.

If rates are kept too low... A) inflation could result. B) deflation could result.

A Question Bankers and Money

The money supply and interest rates Story Time! –The farmer who had a healthy crop. Story Time! –The banker with too much money.

The money supply and interest rates When the money supply goes up, interest rates go down. …and vice versa!

QUIZ

When the supply of something rises, the price of it usually goes A) up. B) down.

When the supply of money increases, interest rates A) rise. B) fall.

Interest rates go up when A) the money supply goes up. B) the money supply goes down.

Picture Time In box 2, draw –a banker, looking inside his vault, which is filled with money. –He should look sad/worried/anxious. –Draw a thought-bubble in which he expresses his frustration, & –…his intent to lower his interest rates.

In box 3 Draw a picture to show interest rates falling.

Bonds Bonds are loans.***** Treasury bonds are loans to… –the Federal Government. The government issues bonds whenever it spends more money than it collects in taxes. –(Which is pretty much every year.)

Bonds The government will borrow money from anybody, so… –Americans hold bonds. –The Federal Reserve holds (a lot of) bonds. –Foreigners hold bonds. –Private banks hold bonds.

After loaning the government $$$ You are left holding a bond. If it’s a 10 year bond, you’ll get paid interest each year. And receive the “purchase amount” back in 10 years.

OR... Maybe you don’t want to wait 10 years. Something comes up, and you want your cash now! In that case you could sell that bond to someone else.

How the Fed controls the money supply... (drum roll)

The Fed buys or sells bonds in the open market Hence the name (Federal Open Market Committee). Remember, people can sell their bonds to other people, or to the Fed. OR buy bonds from other people or the Fed.

What can the Fed do to increase the money supply?? Buy or sell bonds?? Draw it in box #1.

In box 1 Draw the Fed buying bonds. –Money leaving the Fed –Bonds going towards the Fed –This could be shown with hands/arrows/etc.

The Fed buys or sells bonds in the open market The Fed can print money, and BUY bonds from the public. This INCREASES the money supply. Which makes interest rates go ___ which makes people/businesses borrow MORE AND spend MORE (C & I go up) so AD increases, and Real GDP increases and recession ends (yay!!)

In box 6 Draw an increase in production –everybody’s working –unemployment’s low –recession’s over –things are generally better –people are generally happier –it’s a happy ending!

But, as more money gets printed... And people start spending those extra dollars… inflation can result (boo).

Think of a dam… A dam controls the flow of water downriver. Releasing too much water would cause flooding. Too little water would cause a drought.

The Fed is like a dam... & the river is the $ supply. Too much $ causes inflation. Too little $ causes a recession. Federal Reserve Money Supply

Strong-Like-Bull Rule To get the economy going, Bu.L.L. (Buy bonds, Lower federal funds rate, Lower discount rate)

So, to fight inflation, the Fed should... Sell bonds. Which will shrink the money supply, and make dollars more valuable.

Run the Fed Game

Google “fed chairman game” You must be re-appointed 3 times. At first, Mr. Cook will be the only verifier. As students finish the challenge, they will be made verifiers. The first two students to finish the challenge will get candy!

Relationship between unemployment, inflation, and Real GDP.

Assignment Compose a skit in which someone is losing their job. You will act out your skits in front of the class. The class will identify which type of unemployment your skit represents. Each group will compose one skit. You will have about ten minutes to write your short skits.