Types ofTypes of Unemployment Unemployment

and and InflationInflation

The BAD BOYS OF THE ECONOMYThe BAD BOYS OF THE ECONOMY

The Bad Boys!!!The Bad Boys!!!

Inflation is the possible negative Inflation is the possible negative consequence of prosperity. Ultimately, if consequence of prosperity. Ultimately, if inflation is not held in check, it can lead to inflation is not held in check, it can lead to a recessiona recessionUnemployment is the negative effect of a Unemployment is the negative effect of a are recession. If not held it check, it are recession. If not held it check, it makes economic growth very difficult.makes economic growth very difficult.We tend to have one or the other.We tend to have one or the other.Fighting one can lead to causing the otherFighting one can lead to causing the other

InflationInflation

Inflation is an increase in the average price Inflation is an increase in the average price level of all products in an economy level of all products in an economy

Inflation reduces the real purchasing power of Inflation reduces the real purchasing power of the dollar.the dollar.

Inflation usually occurs when aggregate Inflation usually occurs when aggregate demand increases faster than aggregate demand increases faster than aggregate supply.supply.

Deflation is possible but Rare.Deflation is possible but Rare.

Measuring InflationMeasuring InflationProducer Price Index (PPI) Producer Price Index (PPI) The measure of the average change over time in the The measure of the average change over time in the

prices of goods and services used by producers.prices of goods and services used by producers.

Consumer Price index (CPI) – 3%Consumer Price index (CPI) – 3% Specifically measures a basket of 300 goodsSpecifically measures a basket of 300 goods The measure of the average change over time in the The measure of the average change over time in the

price of a fixed group of products.price of a fixed group of products. Used to adjust wages and benefits such as Social Used to adjust wages and benefits such as Social

Security and Security and COLA’sCOLA’s.. COLA – Cost of Living Adjust. Protects you from the COLA – Cost of Living Adjust. Protects you from the

detrimental effects of inflationdetrimental effects of inflation

Types of InflationTypes of Inflation

Demand pull inflation: When aggregate demand Demand pull inflation: When aggregate demand increases faster than the economy’s productive increases faster than the economy’s productive capacity. “Too many dollars chasing too few capacity. “Too many dollars chasing too few goods”goods”

Cost-Push Inflation: When producers raise prices Cost-Push Inflation: When producers raise prices to cover higher resource costs.to cover higher resource costs.

Wage price spiral: due to higher labor costsWage price spiral: due to higher labor costsPrice Expectations: Price Expectations: Hyper InflationHyper Inflation

Effects of InflationEffects of InflationChanges in the purchasing power of the dollar: Changes in the purchasing power of the dollar: you can buy lessyou can buy lessThe value of real wages: wages rarely keep up The value of real wages: wages rarely keep up with inflationwith inflationIncreased Interest rates: discourage spending Increased Interest rates: discourage spending and investment. and investment.

FED often raises ratesFED often raises rates Banks raise rates to protect against inflation (see next Slide)Banks raise rates to protect against inflation (see next Slide)

Savings and investments: discourages savingsSavings and investments: discourages savingsIncreased Production costs: more expensive to Increased Production costs: more expensive to produce goods produce goods

Who is Helped – Who is hurt?Who is Helped – Who is hurt?HelpedHelped HurtHurt uncertain/no uncertain/no

impactimpact

Borrows – if at a Borrows – if at a fixed ratesfixed rates

Banks – if lent at Banks – if lent at fixed ratefixed rate

Income with a Income with a COLACOLA

Government –debt Government –debt and income taxesand income taxes

Government – fixed Government – fixed rate feesrate fees

Adjustable rateAdjustable rate

Both lender and Both lender and borrowborrow

Renters – if they Renters – if they have set lease ratehave set lease rate

Any income at a Any income at a fixed ratefixed rate

Homeowners – if Homeowners – if paid offpaid off

*Elderly tend to be hit *Elderly tend to be hit the hardestthe hardest

UNEMPLOYMENTUNEMPLOYMENT

Types of UnemploymentTypes of UnemploymentFrictional: in between jobsFrictional: in between jobs

Structural unemployment: due to Structural unemployment: due to changing technologychanging technology

Seasonal unemployment: short term jobs; Seasonal unemployment: short term jobs; migrant workers, holiday retail jobs, migrant workers, holiday retail jobs, outdoor resort workoutdoor resort work

Cyclical: unemployment due to economic Cyclical: unemployment due to economic downturnsdownturns

What it means to be EmployedWhat it means to be Employed

Must be 16 or older Must be 16 or older Work for pay or profit for one or more Work for pay or profit for one or more hourshoursWork in a family business without payWork in a family business without payHave a job but not working due to illness, Have a job but not working due to illness, weather, vacations, or labor disputesweather, vacations, or labor disputes

4–6% unemployment is expected4–6% unemployment is expected 5 to 5.5 is considered Natural Rate/Full 5 to 5.5 is considered Natural Rate/Full

EmploymentEmployment

Unemployment – the percentage of the civilian Unemployment – the percentage of the civilian labor force that is not working at a given time.labor force that is not working at a given time.

Civilian labor force – the total # of people 16 and Civilian labor force – the total # of people 16 and up who are employed or actively seeking work up who are employed or actively seeking work (willing and able to work)(willing and able to work)

Unemployment rate = # of unemployedUnemployment rate = # of unemployed# in the civilian labor force # in the civilian labor force

Use the following data to calculate (a) the size of Use the following data to calculate (a) the size of the labor force and (b) the official unemployment the labor force and (b) the official unemployment

raterate

Total Population: 500Total Population: 500

Population under 16 of age: 120Population under 16 of age: 120

Not in labor force: 150Not in labor force: 150

Unemployed: 23Unemployed: 23

Part-time workers: 10Part-time workers: 10

ANSWERSANSWERS

Labor Force is 230= 500 – (120+150)Labor Force is 230= 500 – (120+150)

Official Unemployment Rate: 10%Official Unemployment Rate: 10%

(23/230) x 100(23/230) x 100

Problems with the Problems with the Unemployment RateUnemployment Rate

Discouraged workers – people who have held Discouraged workers – people who have held jobs but have given up looking for workjobs but have given up looking for work

Underemployed –Workers who have jobs Underemployed –Workers who have jobs beneath their skill level or who want full-time beneath their skill level or who want full-time work and are working part-time.work and are working part-time.

Full-time students are not part of the labor Full-time students are not part of the labor force, even if seeking work.force, even if seeking work.

Part Time WorkersPart Time Workers

Uneven BurdenUneven Burden