Challenge #1 in America Unemployment To again monitor the health of our economy, economists measure the Unemployment Rate. Each month, they survey.

Challenge #1 in America

Unemployment

To again monitor the health of our economy, economists measure the Unemployment Rate.

Each month, they survey certain Americans to find out their employment status.

The U.S. Government defines “employed” as people 16 and older meeting one or more of the following criteria.

1. Working for pay or profit for 1 or more hours this week.

2. Working without pay in a family business 15 or more hours.

3. Having a job, but being ABSENT due to illness, weather, vacation, etc.

1. NOT meeting any of the criteria above

AND

2. ACTIVELY looking for work during the past 4 weeks.

The most closely watched and highly publicized labor force statistic is the UNEMPLOYMENT RATE=the percentage of people in the civilian labor force who are UNEMPLOYED.

Measuring Unemployment - Measuring Unemployment - 19941994

EmployedEmployed

Not inNot inlaborlaborforceforce

Under 16and

institutionalized

TotalPopulation267,901,000

TotalPopulation267,901,000

LaborLaborforceforce

136,297,000136,297,000

64,767,00064,767,000

66,837,00066,837,000

Unemployed 6,739,0006,739,000

129,558,000129,558,000

UnemploymentUnemploymentraterate

unemployedunemployed

labor forcelabor forcex 100100=

Measuring UnemploymentMeasuring Unemployment

Structural Cyclical Frictional Seasonal

Unemployment that occurs as a result of changes in technology, consumer preferences, or in the way the economy is “STRUCTURED.” EX: Many TV repairmen had to find new work

as televisions are now built with transistors instead of tubes.

This unemployment results from contractions in the economy.

This type of unemployment HARMS the economy more than any other types of unemployment. During the Great Depression, the

unemployment rate reached an all time high of about 25%.

As recently as 2009 and 2010, the unemployment rate reached 10.2%.

People who have decided to leave one job and LOOK for another typically better job.

Also, new entrants and re-entrants into the LABOR FORCE.

Economists consider frictional unemployment as a NORMAL part of a healthy and changing ECONOMY.

This predictable unemployment fluctuates as a result of HOLIDAYS, school breaks, and industry PRODUCTION schedules.

An increase in the average price level of all products in an economy

Inflation

As prices increase, the amount that a dollar buys decreases.

Inflation reduces the real purchasing power of the dollar.

Real GDP removes inflation.

Inflation that occurs when demand for goods and services exceeds existing supplies

Heavy demand make items more valuable, forcing prices up.

Decrease in purchasing power Erodes fixed income Interest Rates

Savings Investments lose value Loaners lose profit

Occurs when producers raise prices in order to meet increased costs

Factors of production increase (commonly labor) which forces prices to rise.

A decrease in the average price level of all goods and services in an economy.

The most prolonged and most recent deflationary period in the U.S. occurred during the Great Depression, when the unemployment rate was high and wages were low

How do they measure prices of all goods? How do they know that prices are going

up or down?

A price index is a number that tells us how much prices have changed (%) since a base year

If the 1998 price index is 128, and the base year is 1992, then prices have increased 28% between 1992 and 1998

1998 Index = 1281992 Index = 100Price increase= 28

General price rises are called INFLATION

Economists use the Consumer Price Index or the CPI to measure the average change over time in the price of a fixed group of products.

To measure the CPI, the Bureau of Labor Statistics first chooses a base year against which to measure price changes.

Second, they select a representative sample of commonly purchased consumer items, called the market basket. They then set that base year to 100, so that other years can be compared to it easily.

To calculate the CPI, take the price of this year’s cost of the market basket.

Divide it by the cost of the basket in the base year.

Multiply the result by 100. This year’s cost / base year’s cost x

100 For ex. Use the formula to determine the

CPI if the year’s cost is $7000 and the base year’s cost was $4000.

This year’s cost= $7000 Divided by base year’s cost($4000) =

1.75 1.75 x 100 = 175

See the Inflation Rates for 1970-2004 on page 341.

Used to compare different national economies on a per person basis.

GDPPopulation

The poverty rate: the percentage of individuals or families in the total population that are living below the poverty threshold

Poverty threshold: the lowest income as determined by the government that a family or household of a certain size needs to maintain a basic standard of living.

In 2007, the poverty threshold for a family of four was…….

$21,027