splash screen chapter 14 economic instability 2 section 1-1 study guide main idea the term...

Splash Screen

Chapter 14Economic Instability

2

Section 1-1

Study GuideMain Idea

The term “business cycle” refers to alternating increases and decreases in the level of economic activity.

Reading StrategyGraphic Organizer As you read the section, complete a graphic organizer similar to the one on page 375 of your textbook by listing factors that can cause changes in the business cycle.

Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 375 of your textbook.

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Section 1-3

ObjectivesAfter studying this section, you will be able to:

Applying Economic ConceptsEconomic Security  Do you have a job and a paycheck on which you depend? How can economic instability threaten your income?

Study Guide (cont.)

– Explain the phases of the business cycle.

– Identify five causes of business cycles.

Click the Speaker button to listen to the Cover Story.

Click the mouse button or press the Space Bar to display the information. Section 1 begins on page 375 of your textbook.

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Section 1-4

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Introduction

• Economic growth is something that is beneficial to almost everyone.

• Sometimes though, economic growth is interrupted by business cycles–largely systematic ups and downs of real GDP.

• At other times economic growth is interrupted by business fluctuations–the rise and fall of real GDP over time in a nonsystematic manner.

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Section 1-5

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Business Cycles in the United States

• The business cycle consists of two phases: expansion and recession.

• Recession begins with a peak and ends with a trough.

• Expansion is the recovery from a recession.

• If a recession becomes very severe, it can turn into a depression.

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Section 1-5

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Business Cycles in the United States (cont.)

• The worst depression in U.S. history was the Great Depression, which began in 1929.

• The Great Depression was caused by various factors, including excessive borrowing in the 1920s and global economic conditions.

• Since the Great Depression, the United States has experienced several recessions, but each was short compared with the recovery that followed.

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Section 1-8

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Figure 14.1

Business Cycles in the United States (cont.)

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Section 1-14

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Causes of the Business Cycle• Businesses reduce their capital

expenditures once they decide they have expanded enough.

• Businesses cut back their inventories at the first sign of an economic slowdown.

• Businesses cut back on investment after an innovation takes hold.

• Tight money policies of the Federal Reserve System slow the economy.

• External shocks, such as increases in oil prices and international conflicts, can cause business cycles.

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Section 1-21

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Predicting Business Cycles

• Econometric models are macroeconomic model that use algebraic equations to describe how the economy behaves.

• The index of leading indicators is a monthly statistical series that helps economists predict the direction of future economic activity.

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Section

Predicting Business Cycles (cont.)

Figure 14.2

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Section 1-Assessment 7

Are there any measures that you can take to protect yourself from the ups and downs of the business cycle? If so, what are they?

Section Close: Exit TicketOn a sheet of paper answer the following question

End of Section 1

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Section 2-1

Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 382 of your textbook.

Study GuideMain Idea

Frictional, structural, cyclical, seasonal, and technological are the general types of unemployment.

Reading StrategyGraphic Organizer As you read the section, complete a graphic organizer similar to the one on page 382 by listing two ways that structural unemployment takes place.

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Section 2-3

Click the Speaker button to listen to the Cover Story.

Click the mouse button or press the Space Bar to display the information. Section 2 begins on page 382 of your textbook.

ObjectivesAfter studying this section, you will be able to:

Applying Economic ConceptsEmployment  Did you work for at least one hour per week for pay or profit last month? How does your answer to this question determine your employment status?

Study Guide (cont.)

– Explain how the Bureau of Labor Statistics determines if a person is employed.

– Describe five kinds of unemployment.

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Section 2-4

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Introduction

• Nearly one-half of the population of the United States belongs to the civilian labor force, and at any given time millions of these people are without jobs.

• This issue is so important that full employment is one of the seven economic and social goals of the American economy.

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Section 2-5

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Measuring Unemployment

• The unemployment rate shows the percentage of unemployed people divided by the total number of people in the civilian labor force.

• The unemployment rate understates unemployment because it does not include “discouraged” workers or people who are working part-time because they cannot find full-time work.

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Section 2-10

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Kinds of Unemployment

• Frictional unemployment occurs when workers are between jobs.

• Structural unemployment occurs when a fundamental change in the economy reduces the demand for workers and their skills.

• Cyclical unemployment results from changes in the weather or changes in demand for certain products.

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Section 2-10

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Kinds of Unemployment (cont.)

• Seasonal unemployment results from changes in the weather or changes in demand for certain products.

• Technological unemployment results from technological improvements that make some jobs obsolete.

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Section 2-17

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The Concept of Full Employment

• Full employment is lowest possible rate when the economy is growing and all factors of production are being used as efficiently as possible.

• Full employment is achieved when the unemployment rate falls below 4.5 percent.

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Section 2-Assessment 7

Write a paragraph explaining the kind of unemployment that provides the greatest challenge for the economy and why.

Section Close” Exit TicketAnswer the following prompt…

End of Section 2

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22

Section 3-1

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Study GuideMain Idea

“Inflation” is a rise in the general level of prices.

Reading StrategyGraphic Organizer As you read this section, complete a graphic organizer similar to the one on page 389 of your textbook by identifying the steps in a wage-price spiral.

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Section 3-3

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Click the mouse button or press the Space Bar to display the information. Section 3 begins on page 389 of your textbook.

ObjectivesAfter studying this section, you will be able to:

Applying Economic ConceptsInflation  Have you ever wondered if you should buy something before the price of the item goes up? How does inflation change our spending habits?

Study Guide (cont.)

– Explain how inflation is measured.

– Discuss five causes of inflation.

– Analyze the destabilizing consequences of inflation.

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Section 3-4

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Introduction

• Inflation is a special kind of economic instability, one that deals with changes in the level of prices rather than the level of employment and output.

• Even so, changes in prices, employment, and output are all linked.

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Section 3-4

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Did You Know?

• Hyperinflation was so sever in Germany in the 1920s that it completely wiped out the savings of many middle-class Germans. By the end of 1923, $1 was worth four trillion German marks.

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Section 3-5

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Inflation in the United States• The inflation rate is determined by

comparing the price level at the beginning and end of a period.

• Sometimes deflation can occur when there is a decrease in the general price level.

• Creeping inflation is inflation in a range of 1 to 3 percent annually.

• Galloping inflation is when inflation can go as high as 100 to 300 percent annually.

• Inflation of more than 500 percent a year is known as hyperinflation.

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Section 3-7

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Figure 14.5

Inflation in the United States (cont.)

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Section 3-9

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Causes of Inflation

• Demand-pull inflation occurs when all sectors of the economy try to buy more goods and services than the economy can produce.

• Sometimes demand-pull inflation is caused by the federal government’s deficit spending.

• Cost-push inflation occurs when input costs, especially labor, drive production costs up.

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Section 3-10

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Causes of Inflation (cont.)

• The wage-price spiral occurs when higher prices force workers to demand higher wages, forcing producers to raise their prices even more.

• Excessive monetary growth can cause inflation.

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Section 3-Assessment 1

Discussion Question

How can demands for higher wages by unions contribute to inflation?

Higher wages increase a company’s production costs, forcing it to raise its prices.

Click the mouse button or press the Space Bar to display the answer.

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Section 3-13

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Consequences of Inflation

• When inflation occurs the dollar buys less.

• Inflation hurts people with fixed incomes.

• Inflation can cause people to change their spending habits, which disrupts the economy.

• Inflation tempts some people to speculate heavily to take advantage of the higher price level.

• Inflation alters the distribution of income.

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Section 3-12

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Figure 14.6

Consequences of Inflation (cont.)

End of Section 3

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