1. Chapter 13 Section 1 - Unemployment
What are the 4 types of unemployment?
How are unemployment rates determined?
What is full employment a underemployment?
What is a discouraged worker?
"It's a recession when your neighbor loses his job; it's a depression when you lose your own.”
- Harry Truman

2. The Unemployment Game Show

3. The Labor Force
Economists define the labor force as all nonmilitary and non- institutionalized people who are employed or unemployed.
Economists consider someone employed or unemployed if they are at least 16 and meet at least one of the following criteria:
Employed person:
Did any work at all for pay during the past week as a civilian, non- institutionalized person.
Worked 15 or more hours per week without pay in a family enterprise.
Has a job, but did not work due to illness, vacation, bad weather, etc.
Unemployed person:
Tried to find a job during the past 4 weeks, are actively available for work.
Those waiting to be called back after lay off.

4. Determining the Unemployment Rate
The unemployment rate is an important indicator of the health of the economy.
For this reason, the gov’t keeps careful track of how many people are unemployed, and why.
The unemployment rate = percentage of the nation’s labor force that is unemployed.
1-4 Americans rank jobs and unemployment as the most important issue facing the nation.
The current unemployment rate is 5.5% as of March 2015
Michigan’s unemployment rate is 5.6% as of March 2015
Gallup.com Unemployment Rises to Top Problem

5. 4 Types of Unemployment
Frictional Unemployment – Taking time to find a job.
Ex. laid-off, college graduation, change jobs, a stay at home mom returning to workforce.
Unemployment insurance, which provides income to laid-off workers seeking jobs, may contribute slightly to frictional unemployment.
This type of unemployment is healthy even when the economy is booming.

6. 5 Causes of Structural Unemployment
4 Types of Unemployment
Structural Unemployment - Occurs when workers' skills do not match the jobs that are available.
Ex. Online shopping replaces catalog call center jobs.
5 Causes of Structural Unemployment
Development of new technology
Discovery of new resources
Changes in consumer demand
Globalization
Lack of education

7. 4 Types of Unemployment
Seasonal Unemployment - Occurs when industries slow or shut down for a season.
Ex. Construction workers during the winter.
Also considered a healthy form of unemployment and policymakers do not try and prevent this kind of unemployment

8. 4 Types of Unemployment
Cyclical Unemployment - Unemployment that rises during economic downturns and falls when the economy improves.
Ex. An autoworker gets laid-off during a recession when people stop buying cars.
Great Depression was most famous case of cyclical unemployment. 25% unemployed.
Franklin D. Roosevelt proposed, and Congress passed, The Social Security Act of One of its benefits was unemployment insurance.

9. Calculating the Unemployment rate
Calculate the unemployment rate using the following formula:
For example:
If the number of people unemployed = 7.7 million and the number of people in the civilian labor force = million
Then,
7.7 ÷ = .052
.052 × 100 = 5.2
therefore,
the unemployment rate is 5.2%

10. Full Employment
Economists generally agree that 4 to 6 percent is normal. Seasonal frictional, and structural will always exist.
Full employment is the level of employment reached when there is no cyclical unemployment and nearly everyone who wants a job has a job.
Sometimes people are underemployed, that is working a job for which they are over-qualified.
Discouraged workers are people who want a job, but have given up looking for one.
Discouraged workers are not in the labor force.

11. Section 1 Assessment
1. Unemployment that occurs when workers’ skills do not match the jobs that are available is known as
(a) frictional unemployment.
(b) structural unemployment.
(c) seasonal unemployment.
(d) cyclical unemployment.
2. The unemployment rate
(a) is the percentage of the labor force that is unemployed.
(b) is the number of people who are unemployed.
(c) includes only discouraged workers.
(d) is the percentage of the labor force that is underemployed.

12. Section 1 Assessment
1. Unemployment that occurs when workers’ skills do not match the jobs that are available is known as
(a) frictional unemployment.
(b) structural unemployment.
(c) seasonal unemployment.
(d) cyclical unemployment.
2. The unemployment rate
(a) is the percentage of the labor force that is unemployed.
(b) is the number of people who are unemployed.
(c) includes only discouraged workers.
(d) is the percentage of the labor force that is underemployed.

13. Closing Questions
Categorize the type of unemployment for each example:
Jim is unemployed as a result of a career change, and moving across the country.
Frictional
Tina is unemployed as a result in low demand for her services (snow plowing) during the summer months.
Seasonal
Jan is unemployed as a result of a bad economy.
Cyclical
Pat is unemployed as a result of a technology change, and her job as a travel agent is no longer sought.
Structural

14. Inflation 13-2 What are the effects of rising prices?
How do economists use price indexes?
How is the inflation rate calculated?
What are the causes and effects of inflation?

15. The Effects of Rising Prices
“The old days” when you could go to a movie for .25 or buy a house for $15,000.
As prices rise, income usually rises as well.
Inflation is a general increase in prices.
Purchasing power, the ability to purchase goods and services, is decreased by rising prices (inflation shrinks the purchasing power)
Price level is the relative cost of goods and services in the entire economy at a given point in time (used to measure inflation).

16. Price Indexes
To help economists measure price levels, they use a price index.
Price index is a measurement that shows how the average price of a standard group of goods changes over time.
The consumer price index (CPI) is the best-known. It is computed each month by the Bureau of Labor Statistics.
The CPI is determined by measuring the price of a standard group of goods meant to represent the typical “market basket” of consumers.
Changes in the CPI from month to month help economists measure the economy’s inflation rate.
The inflation rate is the percentage change in price level over time.

17. Calculating Inflation
When the inflation rate is between 1 and 3% it’s considered safe

18. Causes of Inflation The Quantity Theory The Demand-Pull Theory
The quantity theory states that too much money in the economy leads to inflation.
Money supply needs to be carefully monitored
The Demand-Pull Theory
The demand-pull theory states that inflation occurs when demand for goods and services exceeds existing supplies
(Ex: during war).
The Cost-Push Theory
According to the cost- push theory, inflation occurs when producers raise prices in order to meet increased costs
(Ex: wage increases when unemployment is low. Businesses raise wages to attract new workers, producers raise prices to make up for it).
This can lead to a wage- price spiral (p.342)

19. Effects of Inflation
High inflation is a major economic problem, especially when inflation rates change greatly from year to year.
Purchasing Power
In an inflationary economy, a dollar loses value. It will not buy the same amount of goods that it did in years past.
Interest Rates
When a bank's interest rate matches the inflation rate, savers break even. When a bank's interest rate is lower than the inflation rate, savers lose money.
Income
If wage increases match the inflation rate, a worker's real income stays the same. If income is fixed income, or income that does not increase even when prices go up, the economic effects of inflation can be harmful (retirement pension funds).

20. Deflation
The opposite of inflation is known as deflation, or a sustained drop in price levels.
Causes of Deflation:
When overall “aggregate supply” in the market is greater than overall “aggregate demand.” Suppliers have to cut their prices in order to stimulate sales when demand is lower than supply.
Both inflation and deflation can cause major economic problems if they get out of control. The Fed tries to control both inflation and deflation.

21. The Deflation Death Spiral
Imagine a 2008 car was going for $30,000. The model is expected to be $15,000 and the 2010 Model is expected to be $7,500.
As you can see the price is dropping. As a result, what consumer in there right mind would buy a vehicle if the next model will be cheaper than today's model? As such, spending dries up on autos and the industry collapses. This same thing can happen to other industries, like Housing.
Wages drop as a result. People cannot pay back their mortgages and loans when paychecks are cut in half. Widespread drop in demand led to high unemployment.This is what occurred during the Great Depression in 1929.

22. USA annual real GDP from 1910–60, with the years of the Great Depression (1929–1939) highlighted

23. Section 2 Assessment 1. Inflation is
(a) the process by which rising wages cause higher prices.
(b) the price increase of a typical group of goods.
(c) a general increase in prices.
(d) the ability to purchase goods and services.
2. Too much money in the economy is the cause of inflation according to
(a) the quantity theory.
(b) the demand-pull theory.
(c) the quantum theory.
(d) the cost-push theory.

24. Section 2 Assessment 1. Inflation is
(a) the process by which rising wages cause higher prices.
(b) the price increase of a typical group of goods.
(c) a general increase in prices.
(d) the ability to purchase goods and services.
2. Too much money in the economy is the cause of inflation according to
(a) the quantity theory.
(b) the demand-pull theory.
(c) the quantum theory.
(d) the cost-push theory.

25. Poverty 13-3 Who is poor, according to government standards?
What causes poverty?
How is income distributed in the United States?
What government programs are intended to combat poverty?

26. Who Is Poor?
The Poverty Threshold
The poverty threshold is an income level below which income is insufficient to support a family or household.
The Poverty Rate
The poverty rate is the percentage of people in a particular group who live in households with income below the official poverty line (15.1% in 2010).
The Census Bureau collects data about how many families and households live in poverty to see who the government considers poor and what factors contribute to poverty.

27. Causes of Poverty Lack of Education
The average high School dropout can expect to earn an annual income of $20,241, according to the U.S. Census Bureau. That’s a full $10,386 less than the typical high school graduate, and $36,424 less than someone with a bachelor’s degree.

28. Causes of Poverty Location
On average, people who live in the inner city and rural areas earn less than people living elsewhere.

29. Causes of Poverty Shifts in Family Structure
Divorce rates and children born to unmarried parents have increased dramatically since the 1960’s. This has resulted in more single-parent families and more children living in poverty. Especially single mothers.

30. Causes of Poverty Economic Shifts
Workers without college-level skills have suffered from the ongoing decline of manufacturing, and the rise of service and high technology jobs. “last hired, first fired.”

31. Causes of Poverty Racial and Gender Discrimination
Some income inequality exists due to hours worked, education, and experience.
However, some inequality exists in wages between whites and minorities, and men and women. (despite progress, wage discrimination continues).
Kennedy signing the Equal Pay Act

32. Income Distribution in the United States
Income Gap
A 1999 study showed that the richest 2.7 million Americans receive as much income after taxes as the poorest 100 million Americans.
Differences in skills and education, field of work, and inheritances contribute to differences in income distribution (The divide between rich and poor continues to climb).

33. Government Policies Combating Poverty
Employment Assistance
The minimum wage and federal and state job-training programs aim to provide more job options for people who lack skills.
Welfare Reform
Temporary Assistance for Needy Families (TANF) is a program which gives grants to the states, allowing them to implement their own welfare assistance programs.
Workfare programs require work in exchange for temporary assistance.
Food stamps are gov’t issued coupons that recipients exchange for food.

34. Persons in family/household Poverty guideline
2014 Poverty Guidelines
2014 POVERTY GUIDELINES FOR THE 48 CONTIGUOUS STATES AND THE DISTRICT OF COLUMBIA
Persons in family/household Poverty guideline
1 $11,670
,730
,790
,850
,910
,970
,030
,090
For families/households with more than 8 persons, add $4,060 for each additional person.

35. Section 3 Assessment
1. An income level below which income is insufficient to support a family or household is known as the
(a) income gap.
(b) poverty rate.
(c) poverty threshold.
(d) income inequality.

36. Section 3 Assessment
1. An income level below which income is insufficient to support a family or household is known as the
(a) income gap.
(b) poverty rate.
(c) poverty threshold.
(d) income inequality.