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CONTEMPORARY ECONOMICS © Thomson South-Western 13.1 Unemployment Distinguish among four types of unemployment. Discuss the unemployment rate, and describe how it differs over time and across groups. Explain who is eligible for unemployment benefits in the United States. Objectives
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Page 1: 13.1 Unemployment - My Finance Classmyfinanceclass.com/files/97458187.pdf13.1 Unemployment Distinguish among four types of unemployment. Discuss the unemployment rate, and describe

CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment

Distinguish among four types of unemployment.

Discuss the unemployment rate, and describe how it differs over time and across groups.

Explain who is eligible for unemployment benefits in the United States.

Objectives

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment

full employmentunderemployment labor forceunemployment rate labor force participation rateunemployment benefits

Key Terms

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE3

Types of UnemploymentFrictional unemploymentStructural unemploymentSeasonal unemploymentCyclical unemploymentFull unemployment

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE4

Frictional UnemploymentThe time required to bring together labor

suppliers and labor demanders creates frictional unemployment.Frictional unemployment does not usually

last long and results in a better match-up between workers and jobs.

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE5

Structural UnemploymentStructural unemployment results when job

seekers do not have the skills demanded.The unemployed may need to retrain to

develop required skills.

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE6

Seasonal UnemploymentUnemployment caused by seasonal

changes in labor demand during the year is called seasonal unemployment.Workers in seasonal jobs know they will

probably be unemployed in the off-season.

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE7

Cyclical UnemploymentCyclical unemployment is the increase in

unemployment caused by the recession phase of the business cycle.Cyclical unemployment increases during

recessions and decreases during expansions.

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE8

Full UnemploymentFull unemployment occurs when there is

no cyclical unemployment; relatively low unemployment.Even when the economy is at full

employment, there will be some frictional, structural, and seasonal unemployment.

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE9Problems with Official

Unemployment Estimates Ignores discouraged workers Ignores underemployment

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE10The Cost and

Measure of UnemploymentUnemployment rateLabor force participation rateChanges in unemployment rateUnemployment for various groups

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE11

Unemployment RateThe labor force consists of those in the

adult population who are either working or looking for work.The unemployment rate equals the

number of people without jobs who are looking for work divided by the number in the labor force.

=Unemployment rateNumber in the labor force

Number unemployed

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE12

Labor Force Participation RateThe labor force participation rate equals

the number in the labor force divided by the adult population.

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE13Composition of Adult Population

(in millions), July 2006

Figure 13.1

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE14Changes in the

Unemployment RateThe unemployment rate increases during

recessions. The unemployment rate falls during

expansions.

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE15

U.S. Unemployment Rate Since 1900

Figure 13.2

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE16

Unemployment for Various GroupsUnemployment rates are higher among

blacks than among whites.Unemployment rates are higher among

teenagers than among those aged 20 and older.

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE17

Unemployment CompensationSocial Security Act of 1935 provides

unemployment insurance financed by a tax on employers.Unemployment benefits—cash transfers

to unemployed workers who actively seek work and who meet other qualifications.

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.1 Unemployment SLIDE18Unemployment Benefits

and Work IncentivesUnemployment benefitsMay reduce the incentive to find workAllow for a more careful job searchAllow the unemployed to continue to

spend

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.2 Inflation

Describe the types of inflation, and identify two sources of inflation.

Identify the problems that unexpected inflation creates.

Objectives

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.2 Inflation

inflationdemand-pull inflationcost-push inflationnominal interest rate real interest rate

Key Terms

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.2 Inflation SLIDE3

Inflation Basics Inflation is an increase in the economy’s

general price level.

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.2 Inflation SLIDE4

Types of InflationHyperinflation—extremely high inflationDisinflation—a reduction in the rate of

inflationDeflation—a decrease in the general price

level

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.2 Inflation SLIDE5

Two Sources of InflationDemand-pull inflation is inflation

resulting from increases in aggregate demand.Cost-push inflation is inflation stemming

from decreases in aggregate supply.

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.2 Inflation SLIDE6

Inflation Caused by Shifts of the Aggregate Demand and Aggregate Supply Curves(a) Demand-pull inflation:

inflation caused by an increase of aggregate demand

(b) Cost-push inflation:inflation caused by a decrease of aggregate supply

Figure 13.4

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.2 Inflation SLIDE7

Consumer Price Index Since 1913 Despite fluctuations,

the price level, as measured by the consumer price index, was lower in 1940 than in 1920.

Since 1940, the price level has risen almost every year.

Figure 13.5

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.2 Inflation SLIDE8

Impact of Inflation Inflation reduces the value of the dollar

and takes away confidence in the value of the dollar over the long term.

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.2 Inflation SLIDE9Expected Versus

Unexpected InflationUnexpected inflation creates more

problems for the economy than does expected inflation.To the extent that inflation is higher or

lower than expected, it arbitrarily creates economic winners and losers.

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.2 Inflation SLIDE10The Transaction Costs

of Unexpected InflationReduced productivity Increased transaction costs of market

exchange

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CONTEMPORARY ECONOMICS © Thomson South-Western

13.2 Inflation SLIDE11

Inflation and Interest Rates Nominal interest rate—the interest rate

expressed in current dollars as a percentage of the amount loaned; the interest rate on the loan agreement.

Real interest rate—the interest rate expressed in dollars of constant purchasing power as a percentage of the amount loaned; the nominal interest rate minus the inflation rate.

Real interest rate = Nominal interest rate – Inflation rate