SECTION 1: Unemployment SECTION 2: Inflation SECTION 3: Poverty and Income Distribution 1 Economic Challenges CHAPTER 11.

SECTION 1: UnemploymentSECTION 2: InflationSECTION 3: Poverty and Income

Distribution

1

Economic Challenges

CHAPTER 11

Unemployment ratea labor force statisticthe percentage of people in the nonmilitary labor force who are

unemployed5% is considered healthyThis rate tends to rise in recession and fall during expansionMost closely watched and highly publicized labor force statisticCensus Bureau conducts the Current Population Survey which

collects data on the labor force.

UnemploymentUnemployment

Worked for pay or profit one or more hoursWorked without pay in a family business 15

or more hoursHave jobs but did not work as a result of

illness, weather vacations, or labor disputes

Unemployment - Individuals ages 16 and older are classified as employed if during the survey week they:

Four major types of unemployment:

Frictional – workers move from one job to anotherStructural – changes in technologySeasonal – employment changes from season to

seasonCyclical – results from recessions & economic

downturns (most harmful)

UnemploymentUnemploymentSECTION 1

Economic costs of high unemployment:reduced production of goods and servicesreduced business salesincreased need for federal support of the

unemployed

UnemploymentUnemploymentSECTION 1

•Full-Employment- this does not mean everyone has a job and that the unemployment rate is 0…so economists generally consider an unemployment rate of about 5% to represent full employment

•Under-employed – workers who have jobs beneath their skill level or who want full-time work but are only able to find part-time jobs

What economists examine when evaluating price fluctuations:

price levelsInflation – an increase in the average price level…thus,

inflation reduces the real purchasing power of the dollarDeflation – a decrease in the average price level…thus,

deflation boosts the real purchasing power of the dollar

InflationInflationSECTION 2

Causes of inflation:demand-pull inflation—when demand surpasses productioncost-push inflation—when producers increase prices to

cover higher resource costsfuture price expectations –when consumers expect prices

to increase, they tend to buy immediately to take advantage of lower prices… as a result aggregate demand increases and inflation rises and vice versa

InflationInflationSECTION 2

Main price indexes that economists use to measure inflation:

consumer price index – a measure of the average change over time in the price of a fixed group of products (ie. Food, clothing, shelter, utilities, etc.

producer price index – a measure of the average change over time in the prices of goods and services bought by producers

InflationInflationSECTION 2

Effects of inflation:decreased purchasing power of the dollardecreased value of real wagesdecreased saving and investingincreased interest ratesincreased production costs

InflationInflationSECTION 2

The poverty threshold (poverty level) —the lowest income that a household of a certain size or composition needs to maintain a basic standard of living—is used to determine the poverty rate in the United States.

Poverty and Income DistributionPoverty and Income Distribution

SECTION 3

Two Ways Economists Measure Distribution of IncomeLorenz Curve

Gini Index

Federal policies to reduce the income gap and decrease poverty:increasing access to educational resourcesproviding training for low-skilled workersredistributing income – this is done via taxation and

then give to those who are impoverished through entitlement programs or through tax credits.

raising minimum wagesetting wage levelsprohibiting companies from building in foreign

countries where labor is cheaper

Poverty and Income DistributionPoverty and Income Distribution

SECTION 3

Limitations of Income DistributionData used to determine the distribution of income

are based on families’ or households’gross incomes before deductions for such expenses as personal income taxes, Social Security, Medicare, health insurance, and union dues. Income also does not include capital gains or the value of non-cash benefits that families or households may receive such as food stamps, health benefits or low cost housing.

Most measures of income distribution do not differentiate among families or households of different sizes and ages or number of wage earners.

Equal Outcome VS. Equal Opportunity

The economic and political system of the United States allows for ALL to have an equal opportunity to succeed.

BUT….an equal outcome for everyone is not guaranteed in a our economy…meaning everyone is not guaranteed a job with a 6 figure salary and a corner office.

We are given the tools to succeed…it’s what we do with them that determines whether or not we are SUCCESSFUL!!

Quiz1. Which type of unemployment is most damaging to

the U.S economy? Explain your answer.2. Explain the concept of full employment. Identify the following as exampes of demand-pull

inflation or cost-push inflation.A. An increase in the price of a popular toy at

Christmas when the stores are sold out of the product

B. an increase in the price of orange juice because of a drought in Florida

C. an increase in the price of Chunky Chicken products because of a union-negotiated wage increase for production workers

4. What are some of some of the limitations of income distribution measurements?