1. Unemployment/Inflation Chapter 13

2. Breakdown of Total U.S. Population by Employment Status

3. Unemployment Rate
Percentage of the civilian labor force that is unemployed
Civilian Labor Force – 16 years or older either employed or actively seeking employment
Idaho unemployment rate July 2008 – 4.1% - today 6.8%
U.S. unemployment rate July 2008 – 5.7%
- Today 8.5%

4. More…..
Individuals who are actively looking for a job but work less than 1 hour per week for pay or profit
Does not include people who are underemployed, working part time, or have given up the job search
Government takes monthly surveys to measure the unemployment rate

5. Full Employment
Even in an economy that is working properly, economists expect some unemployment.
An unemployment rate of 3% is considered full employment.
However, some people with jobs could be underemployed – they work part-time but want full

6. One Economic Indicator
Economists measure how healthy the economy is at any given time by counting the number of people who are unemployed.

7. Unemployment Insurance
Way of tracking unemployment in U.S.
Not public assistance – paid for by your employers – based on type of work done
Two qualifications
Personal eligibility – able to work
Monetary requirements – worked last 5 quarters
Automated system
$28,000 per year would make one eligible for $275/week for 6 months

8. Types of Unemployment Frictional Seasonal Technological Structural
Cyclical

9. Frictional Unemployment
People take time to find a job
Get laid off, take time to find right job
Graduate from high school or college
Looking for a new job
Left job to take care of a parent, coming back

10. Seasonal Unemployment
Unemployment that occurs as a result of harvest schedules or vacations
Industries slow down or shut down due to cold weather
Summer Job – Boondocks
Winter Jobs - Bogus

11. Technological Unemployment
Automation makes some workers skills obsolete

12. Structural Unemployment
Worker’s skills do not match the jobs that are available
Need skills to success
Move from farming to manufacturing
Manufacturing to service
Takes time to retrain

13. Cyclical Unemployment
In economic downturns people are laid off because there is a surplus of inventories and no demand

14. Unemployment can cause uncertainly, political instability, and social problems

15. Inflation

16. What is Inflation?
An increase in the price level, or the average level of prices
The same amount of money buys less
Inflation reduces people’s purchasing power (ability to buy goods and services)

17. How Do We Measure Inflation?
Economists use a price index
If the price index increases from year to year – we are experiencing inflation
CPI (Consumer Price Index) - most commonly used inflation measure
measuring the price of a standard group of goods meant to represent the “market basket” of a typical urban customer
Watching from year to year helps determine the inflation rate (% change in prices over time)

18. Three Causes of Inflation
Quantity theory – too much money in the economy chasing too few goods
Demand Pull –
Demand-side inflation
When demand for goods and services exceeds supply
Government increase in spending on war goods causes the price to go up for those goods
Johnson years – Vietnam War and Great Society
Civilian demands outpaced supply pulling prices up

19. Supply-side inflation
Cost Push
Supply-side inflation
Inflation occurs when producers raise prices to meet increased costs for labor and raw materials
Wage-Price Spiral
Increase in one type of prices can cause other prices to rise to make up for lost profit - oil
Price-wage spiral – lack of competition results in businesses increases prices – causes an increase in wage demand

20. Affects of Inflation Reducing purchasing power
People on fixed incomes, such as social security and investment proceeds, are negatively effected.
The greater the inflation rate, interest earned on savings loses value – can buy less with the money you have
If you have a long-term contract – can eat up profits over time.

21. Deflation Opposite of inflation
A decline in the price level, or average level of prices
A downward change in the CPI indicates deflation
PROBLEMS – when prices do not fall at the same time, some firms go out of business or lay off workers

22. Hyperinflation Inflation that exceeds 50% per month
The value of money decreases
CAUSES – government needs to pay for government services but does not want to raise taxes, so they print more money
People immediately convert money to goods and services because they are worth more

23. Examples of Hyperinflation
U.S. – 1918 – 20.4% - booming economy after WW I
Germany – – 3 trillion % inflation - prices doubled every two days – economic crisis helped rise Hitler to power
Greece – – prices doubled every 28 hours
Hungary – after WWII – prices doubled every 15 hours
Yugoslavia – 1994 – prices doubled every 18 hours
Zimbabwe – December 2008 – million % inflation per month