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Facing Economic Challenges Economics Chapter 13 Notes
Economic Challenges
Three economic challenges discussed in this chapter:
Unemployment
Poverty and Income Distribution
Inflation
Economic Challenges - Unemployment
Unemployment has a variety of causes. Some level of unemployment is expected, even when an economy is healthy.
Underemployed—work part-time, want full-time or work below skill level
Measuring Unemployment
The Unemployment Rate Measure of unemploymentIncludes those over 16 who are not working, are able to work and actively seeking workDoes not include military, those in prison, those who are not seeking a job.
Measuring Unemployment
Full Employment Always some degree of unemployment:
people relocate; look for better job; can’t find appropriate job
Unemployment rate of 4 to 6 percent considered full employment in U.S.
other rates in countries with different labor markets, economic policies
Types of Unemployment
Type 1: Frictional UnemploymentPeople “in between” jobs.Includes:
Childrearing parents returning to worknew college graduates looking for first jobexperienced workers who want to switch jobs
Reflects workers’ freedom to find best job for them at highest wage
Types of Unemployment
Type 2: Seasonal UnemploymentDemand for some jobs changes dramatically from season to season
construction work falls off in wintertourism peaks at certain times of year; varies by regionmigrant farm work drops off in winter; migrant families suffer
Types of Unemployment
Type 3: Structural UnemploymentAs businesses become more efficient, require fewer workers
new technologies replace workers or require them to retrainnew industries requiring specialized education do not employ unskilledchange in consumer demand can shift type of workers neededoffshore outsourcing sometimes leaves people out of work
Types of Unemployment
Type 4: Cyclical Unemployment
As the nation goes through business cycles, it faces the problems of unemployment and inflation.Employers lay off workers during low points in business cycle
Section 2:Poverty and Income
Distribution What Is Poverty?
The Poverty Threshold People considered in poverty if income falls below poverty thresholdAlso called the poverty lineCalculated based on costs of nutritious food, other necessities
The 2009 Poverty Guidelines for the 48 Contiguous States and the District of
Columbia
Number in Family Poverty Line
1 $10,830
2 $14,570
3 $18,310
4 $22,050
What Is Poverty?
The Poverty Rate Poverty rate—percent of people in households below poverty threshold
based on population as a wholePoverty does not hit all sectors of society equally. Most at risk:
Children, minorities; inner-city, rural, and single–mother families
Factors Affecting Poverty
Education—the higher the level of education, the higher the income
Discrimination against minorities, women sometimes face wage discrimination, occupational segregation
Demographic trends—single-parent families have more economic problems
Change from manufacturing to service jobs has resulted in lower wages for low-skilled workers
Income Distribution
Income distribution—how income is divided among people in a nation
Income inequality—unequal distribution of income; some always exists
Income Distribution
$0 $150,000$100,000$50,000 $250,000$200,000
112,363,000 Households below $250,000
Each equals 500,000 households
http://ngm.nationalgeographic.com/2011/03/age-of-man/map-interactive
Assistance for people in poverty
Food stamp program gives card, government deposits funds in account
card can be used only to buy food at grocery stores
Medicaid offers health care; funded by federal and state governments
Earned-income tax credit—refunds taxes deducted from paychecks
money usually spent in own communities, helping boost their economies
General Antipoverty Programs
Social Security program pays benefits to retirees, survivors, disabled
Medicare is government health insurance for seniors
Unemployment insurance helps laid-off workers while looking for job
How Difficult is it to Live at the Poverty
Level? You are head of a family of four with an income at the poverty level of $20,000.
Housing: $5,400 Utilities: $2,400 Transportation: $5,000 Food: $4,200 Health Care: $2,200 Child Care: $2,400
BALANCE:
How much Money do you have now?
Life on $1 a Day
Is it possible to live on $1 a day?
Life on $1 a Day What were you able to afford?
What was difficult about the task?
What did you really need that you couldn’t afford?
How would you care for and feed your family with these budget limitations? What would you do?
Section 3: Inflation
Definition of inflation:
A sustained rise in the general price level, or a sustained fall in the purchasing power of money.
What Is the Impact of Inflation?
Effect 1: Decreasing Value of the Dollar
Rising consumer price index represents declining value of the dollarPeople on a fixed income are especially vulnerable
each dollar they have buys less every year
Inflation helps people who borrow at a fixed rate of interest
What Is the Impact of Inflation?
Effect 2: Increasing Interest Rates
Lenders raise interest rates to ensure profit on loans Businesses avoid borrowing to expand or make capital improvementsConsumers less likely to finance high-priced itemsMonthly credit card payments go up as rates rise
What Is the Impact of Inflation?
Effect 3: Decreasing Real Returns on Savings
Interest on savings tends to increase during inflationary timesAny interest you earn on investments is worth less than it was before
The Effects of Inflation in the 1970s
BackgroundIn the 1970s, the United States experienced the longest period of inflation in its history. By 1979, inflation had risen to 10 percent per year or higher. Prices of consumer goods rose dramatically. Those on fixed incomes were particularly affected.
What’s the IssueHow did inflation affect people and businesses in the 1970s?
Thinking EconomicallyName one example from each document that shows how inflation has a negative impact on the economy.Inflation is a general rise in price levels. Are the examples of price increases in documents B and C symptoms of inflation or isolated price increases?Compare the tone of documents A and C. Do economists care as much about inflation as consumers? Explain.